analysis of financial results · 2019-09-04 · this report covers the audited summarised financial...

for the year ended 30 June 2016

analysisof financialresults

This report covers the audited summarised financial results of FirstRand Bank Limited based on International Financial Reporting Standards (IFRS) for the year ended 30 June 2016. The primary results and accompanying commentary are presented on a normalised basis as the bank believes this most accurately reflects its economic performance. The normalised results have been derived from the IFRS financial results.

Normalised results include a summarised income statement, statement of comprehensive income and statement of financial position. A detailed description of the difference between normalised and IFRS results is provided on pages 72 to 73. Detailed reconciliations of normalised to IFRS results are provided on pages 82 to 87. Commentary is based on normalised results, unless indicated otherwise.

Jaco van Wyk, CA(SA), supervised the preparation of the summarised financial results.

FirstRand Bank’s annual financial statements will be published on the group’s website, www.firstrand.co.za, on or about 4 October 2016.

About this report

1929/001225/06 | Certain entities within the FirstRand group are Authorised Financial Services and Credit Providers. This analysis is available on the group’s website: www.firstrand.co.zaEmail questions to [email protected]

cont

ents

OVERVIEW OF BANK RESULTS

01 Simplified group structure

04 Key financial results, ratios and statistics

05 Summarised financial statements – normalised

08 Flow of funds analysis – normalised

09 Overview of results

16 Segment report

20 Additional segmental disclosure – WesBank

INCOME STATEMENT ANALYSIS

22 Net interest income

27 Credit highlights

29 Non-interest revenue

32 Operating expenses

33 Direct taxation

BALANCE SHEET ANALYSIS AND FINANCIAL RESOURCE MANAGEMENT

36 Economic view of the balance sheet

37 Advances

39 Credit

54 Deposits

55 Funding and liquidity

63 Capital

69 Credit ratings

IFRS INFORMATION

72 Presentation

74 Independent auditors’ report

75 Summarised financial statements

81 Reconciliation from headline to normalised earnings

82 Reconciliation of normalised to IFRS summarised income statement

86 Reconciliation of normalised to IFRS summarised statement of financial position

88 Fair value measurements

98 Summarised segment information

SUPPLEMENTARY INFORMATION

100 Contingencies and commitments

101 Company information

102 Listed financial instruments of the bank

105 Definitions

SIMPLIFIED GROUP STRUCTURE

1. Division2. Branch 3. Representative office* MotoNovo Finance is a business

segment of FirstRand Bank Limited (London Branch).

** Trading as FNB Channel Islands.

LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR)

FirstRand Bank Limited

Bond code: FRII

Banking

100% 100% 100% 100% 100%

Africa and emerging markets

FirstRand Investment Holdings (Pty) Ltd

(FRIHL)

Other activities Investment management Insurance

58% FNB Namibia

69% FNB Botswana

100% FNB Swaziland

90% FNB Mozambique

100% FNB Zambia

100% FNB Lesotho

100% FNB Tanzania

100% First National Bank Ghana

100% RMB Nigeria

100% FirstRand International – Mauritius

First National Bank1

Rand Merchant Bank1

WesBank1

FirstRand Bank India2

FirstRand Bank London2,*

FirstRand Bank Guernsey2,**

FirstRand Bank Kenya3

FirstRand Bank Angola3

FirstRand Bank Dubai3

FirstRand Bank Shanghai3

96% RMB Private Equity Holdings

93% RMB Private Equity

100% RMB Securities

50% RMB Morgan Stanley

100% FNB Securities

100% RentWorks

100% Direct Axis

81% MotoVantage

100% FirstRand International – Guernsey

100% RMB Australia Holdings

100% FirstRand Insurance Services Company (FRISCOL)

100% FirstRand Securities

100% Ashburton Fund Managers

100% Ashburton Investor Services

100% Ashburton Management Company (RF)

100% Ashburton Private Equity GP 1

100% Ashburton Equity Hedge Fund GP 1

100% Ashburton Investments International Holdings

100% FNB CIS Management Company (RF)

100% Atlantic Asset Management

100% FirstRand Life

Assurance

34.1%

28.2%

Royal Bafokeng Holdings (Pty) LtdDirectors

RMB Holdings Limited

Remgro Limited

BEE partners

4.2%

9.9% 15.0%3.9%

FirstRand Insurance Holdings (Pty) Ltd

FirstRand EMA (Pty) Ltd (FREMA)

FirstRand Investment Management

Holdings Limited

ANALYSIS OF FINANCIAL RESULTS 30 JUNE 2016

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Structure shows effective consolidated shareholdingFor segmental analysis purposes, entities included in FRIHL and FREMA, FirstRand Investment Management Holdings Limited and FirstRand Insurance Holdings (Pty) Ltd are reported as part of results of the managing franchise. The group’s securitisations and conduits are in FRIHL.

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FirstRand Bank (FRB or the bank) is a wholly-owned subsidiary of FirstRand Limited (FirstRand or the group), which is listed on the Johannesburg Stock Exchange (JSE) and the Namibian Stock Exchange (NSX). The bank provides a comprehensive range of retail, commercial, corporate and investment banking services in South Africa and offers niche products in certain international markets. The bank has three major divisions which are separately branded. First National Bank (FNB), the retail and commercial bank, Rand Merchant Bank (RMB), the corporate and investment bank, and WesBank, the instalment finance business. The FCC franchise represents group-wide functions. FRB has branches in London, India and Guernsey, and representative offices in Kenya, Angola, Dubai and Shanghai.

The bank’s portfolio produced a very resilient performance

Credit loss ratio

0.84%

NPLs % of advances

2.4%

Normalised earnings

14%

ROE

23%

ROA

1.75%

CET1

13.9%

9 032

10 842

12 321

15 246

17 351

13 14 15 16 12

NORMALISED EARNINGS (R million)

AND ROE (%)CAGR 18%

21.6

22.421.9

22.9 23.0

45 99751 407

61 064

71 997

78 919

13 14 15 16 12

NORMALISED NAV (R million)

CAGR 14%

The bank’s portfolio has produced five years of superior performance


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R million 2016 2015 % change

Earnings performance

Normalised earnings 17 351 15 246 14

Attributable earnings – IFRS (refer page 75) 16 931 15 394 10

Headline earnings 16 959 15 387 10

Normalised net asset value 78 919 71 997 10

Tangible normalised net asset value 78 813 71 926 10

Average normalised net asset value 75 458 66 531 13

Capital adequacy* – IFRS

Capital adequacy ratio (%) 17.1 16.9

Tier 1 ratio (%) 14.2 14.6

Common Equity Tier 1 (CET1) ratio (%) 13.9 14.2

Balance sheet

Normalised total assets 1 031 579 949 959 9

Loans and advances (net of credit impairment) 764 088 705 257 8

Ratios and key statistics

ROE (%) 23.0 22.9

ROA (%) 1.75 1.69

Average gross loan-to-deposit ratio (%) 93.2 92.7

Diversity ratio (%) 41.6 42.5

Credit impairment charge 6 255 4 993 25

NPLs as % of advances 2.43 2.17

Credit loss ratio (%) 0.84 0.73

Specific coverage ratio (%) 38.6 41.0

Total impairment coverage ratio (%) 78.2 86.6

Performing book coverage ratio (%) 0.99 1.01

Cost-to-income ratio (%) 54.0 55.3

Effective tax rate (%) 24.2 25.1

Number of employees 36 310 35 877 1

* Ratios include unappropriated profits.

KEY FINANCIAL RESULTS, RATIOS AND STATISTICS – NORMALISED


Net interest income before impairment of advances 38 333 33 913 13

Impairment of advances (6 255) (4 993) 25

Net interest income after impairment of advances 32 078 28 920 11

Non-interest revenue 27 261 25 057 9

Income from operations 59 339 53 977 10

Operating expenses (35 392) (32 591) 9

Income before tax 23 947 21 386 12

Indirect tax (763) (751) 2

Profit before tax 23 184 20 635 12

Income tax expense (5 614) (5 182) 8

Profit for the year 17 570 15 453 14

NCNR preference shareholders (219) (207) 6

Normalised earnings attributable to ordinary equityholders of the bank 17 351 15 246 14

SUMMARISED INCOME STATEMENT – NORMALISEDfor the year ended 30 June


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Items that may subsequently be reclassified to profit or loss

Cash flow hedges 118 (271) (>100)

Gains/(losses) arising during the year 144 (569) (>100)

Reclassification adjustments for amounts included in profit or loss 20 193 (90)

Deferred income tax (46) 105 (>100)

Available-for-sale financial assets (495) (35) >100

Losses arising during the year (679) (40) >100

Reclassification adjustments for amounts included in profit or loss 7 (20) (>100)

Deferred income tax 177 25 >100

Exchange differences on translating foreign operations 482 290 66

Gains arising during the year 482 290 66

Items that may not subsequently be reclassified to profit or loss

Remeasurements on defined benefit post-employment plans (31) 108 (>100)

(Losses)/gains arising during the year (43) 151 (>100)

Deferred income tax 12 (43) (>100)

Other comprehensive income for the year 74 92 (20)

Total comprehensive income for the year 17 644 15 545 14

Attributable to

Ordinary equityholders 17 425 15 338 14

NCNR preference shareholders 219 207 6


SUMMARISED STATEMENT OF COMPREHENSIVE INCOME – NORMALISED for the year ended 30 June

R million 2016 2015

ASSETS

Cash and cash equivalents 50 997 53 725

Derivative financial instruments 39 923 34 112

Commodities 12 514 7 354

Investment securities 111 430 103 673

Advances 764 088 705 257

Accounts receivable 4 561 4 301

Non-current assets and disposal groups held for sale – 125

Current tax asset 166 –

Amounts due by holding company and fellow subsidiaries 32 793 27 318

Property and equipment 13 632 12 821

Intangible assets 106 71

Deferred income tax asset 1 369 1 202

Total assets 1 031 579 949 959

EQUITY AND LIABILITIES

Liabilities

Short trading positions 14 221 5 270


Creditors, accruals and provisions* 12 644 12 465

Current tax liability 75 69

Deposits 826 473 779 703

Employee liabilities 8 772 8 848

Other liabilities 5 386 3 977

Amounts due to holding company and fellow subsidiaries 13 997 11 836

Tier 2 liabilities 17 468 11 983

Total liabilities 949 660 874 962

Equity

Ordinary shares 4 4

Share premium 16 804 16 804

Reserves 62 111 55 189

Capital and reserves attributable to ordinary equityholders 78 919 71 997

NCNR preference shares 3 000 3 000

Total equity 81 919 74 997

Total equity and liabilities 1 031 579 949 959

* In the prior year, provisions were presented in a separate line on the statement of financial position. The prior year has been restated accordingly.

SUMMARISED STATEMENT OF FINANCIAL POSITION – NORMALISEDas at 30 June


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June 2016vs June 2015

June 2015vs June 2014

R million12-month

movement12-monthmovement

Sources of funds

Capital account movement (including profit and reserves) 6 922 10 933

Working capital movement (2 264) (674)

Short trading positions and derivative financial instruments 12 953 3 576

Investments (6 006) (889)

Deposits and long-term liabilities 52 255 87 026

Total 63 860 99 972

Application of funds

Advances (58 831) (83 145)

Cash and cash equivalents 2 728 (1 937)

Investment securities (7 757) (14 890)

Total (63 860) (99 972)

FLOW OF FUNDS ANALYSIS – NORMALISED

INTRODUCTION

The impact of Brexit on global financial markets, coupled with the heightened risk aversion it has brought about, has resulted in ever tighter financial conditions globally. This allied with increased economic uncertainty will push global growth even lower than initially anticipated.

At the same time, South Africa’s economy remains fragile due to continuing low domestic growth, which is forecast to prevail over the next few years. This has been further exacerbated by rising unemployment, still high double deficits and the significant foreign ownership of South Africa’s bond and equity markets. Low growth combined with weaker balance sheets of some state-owned enterprises (SOEs) has added fiscal risk which is likely to result in a sovereign downgrade by the end of 2016.

The South African consumers’ disposable income in certain segments of the market, particularly those exposed to high inflation, remained under pressure.

Across the broader region, certain African countries still face significant growth headwinds as the commodity cycle unwinds.

OVERVIEW OF RESULTS

Despite this challenging economic backdrop, for the year to June 2016 FirstRand Bank’s portfolio produced a good performance, growing normalised earnings 14% and producing an ROE of 23.0%.

The table below shows a breakdown of sources of normalised earnings from the operating franchises.

SOURCES OF NORMALISED EARNINGS

R million 2016%

composition 2015%

composition%

change

FNB 10 644 61 9 440 61 13

RMB 3 692 21 3 754 25 (2)

WesBank 2 574 15 1 978 13 30

FCC (including Group Treasury) and other* 660 4 281 2 >100

NCNR preference dividend (219) (1) (207) (1) 6

Normalised earnings 17 351 100 15 246 100 14

* Includes year-on-year negative accounting mismatches primarily reflected in the nominal NII growth of the bank.


The bank’s NII increased 13% driven by ongoing growth in advances

(8%) and deposits (6%). Whilst margins in many of the asset

generating businesses continued to come under pressure from

higher term funding and liquidity costs, earnings benefited from the

positive endowment effect of an average 68 bps increase in the repo

rate for the year.

Total NIR growth of 9% was robust, and especially impressive at FNB

given the regulatory impact of interchange. NIR also benefited from

RMB’s knowledge-based fees.

Total operating expenses increased 9% and continue to trend above

inflation as the bank remains committed to investing in its future

growth strategies. Cost growth was impacted by lower variable costs

as well as lower share-based payment expenses given the negative

movement in the group’s share price during the year.

The cost-to-income ratio decreased to 54.0% (2015: 55.3%).

As predicted, given the current cycle, the credit impairment ratio

increased from 73 bps to 84 bps, which remains below the bank’s

through-the-cycle charge of 100 bps to 110 bps.

This was driven by:

the anticipated normalisation of credit experience in the retail

portfolios, i.e. mortgages, card and VAF; and

new business strain as a result of strong book growth in unsecured

retail portfolios in FNB, linked to cross-sell and up-sell strategies,

and in FNB Commercial.

As a result, NPLs have increased, however, the overall credit picture remains in line with expectations and reflects both the respective franchise growth strategies and specific origination actions taken in the different segments of the bank’s customer base throughout the current credit cycle.

The bank consistently adjusted credit appetite in the high risk segments of the retail market from as early as 2011, but has seen robust growth on the back of FNB’s strategy to focus on lending to its core transactional customer base.

The performing book coverage ratio of 99 bps reduced marginally from the prior year’s 101 bps. This was largely as a result of the partial central overlay release given the previously identified risk manifesting with NPL formation increasing in some of the underlying franchises and products resulting in higher specific impairments.

STRATEGIC OVERVIEW

As outlined in its interim results announcement, the group has adjusted its stated strategic framework to accommodate a broader set of growth opportunities, from a product, market, segment and geographic perspective. The group believes this approach will ensure sustainable and superior returns for shareholders.

FirstRand’s portfolio of leading financial services franchises provides a universal set of transactional, lending, investment and insurance products and services. The franchises operate in markets and segments where they can deliver competitive and differentiated client-centric value propositions, leveraging the relevant distribution channels, product skills, licences and operating platforms of the


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Overview of results continued

wider group. Strategy is executed on the back of disruptive and innovative thinking, underpinned by an owner-manager culture combined with the disciplined allocation of financial resources.

Execution on this new framework has resulted in a fundamental shift in the way the group utilises its operating platforms. Through the adoption of a “franchise-neutral” business model, the customer-facing operating franchises have started to leverage group-wide technology platforms, customer bases, distribution channels, licences and skills.

In South Africa, the bank continues to focus on:

growing profitable market share;

cross-sell and up-sell; and

leveraging the group’s building blocks (i.e. customer-bases, distribution channels and systems). Whether or not these platforms are part of FirstRand Bank, the optimal leverage of group-wide resources is key to protecting and growing FirstRand’s large and successful lending and transactional franchises. For example, the manufacture of credit funds on the asset management platform provides protection and upside to RMB’s origination franchise. Sales of investment products, manufactured on the asset management platform, create NIR growth for FNB.

In the rest of Africa, the bank’s balance sheet is utilised in RMB’s cross-border lending activities. The group’s subsidiaries in the rest of Africa form part of FirstRand EMA (Pty) Ltd (refer to the simplified group structure on page 01) and thus fall outside of the bank.

In addition, the MotoNovo Finance business in the UK offers a platform for further growth in developed markets.

FRANCHISE PERFORMANCE REVIEW

Below is a brief overview of the financial and operational performance of the bank’s major operating franchises.

FNBFNB represents the bank’s activities in the retail and commercial segments in South Africa and India. It is growing its franchise strongly in both existing and new markets on the back of a compelling customer offering that provides a broad range of innovative financial services products. This offering is delivered through efficient and cost effective delivery channels, particularly electronic and digital platforms.

FNB FINANCIAL HIGHLIGHTS



Normalised profit before tax 14 785 13 112 13

Total assets 333 320 308 245 8

Total liabilities 318 635 295 140 8

NPLs (%) 2.93 2.63


SEGMENT RESULTS


Normalised PBT

Retail 9 102 8 280 10

FNB Africa* (357) (323) 11

Commercial 6 040 5 155 17

Total FNB 14 785 13 112 13

* Relates to head office costs and FNB’s activities in India. Earnings of the subsidiaries in the rest of Africa form part of FREMA and are not reported in the bank.

FNB grew pre-tax profits 13%, which is a solid performance given the increasing economic and regulatory headwinds the business is currently facing and is testament to the quality of its transactional, lending and liabilities franchises.

This performance was again driven by FNB’s ongoing strategy to grow and retain core transactional accounts, use its customer relationships and data analytics to effectively cross-sell and up-sell into that customer base whilst applying disciplined origination strategies and providing innovative transactional and savings products. FNB’s cross-sell ratio improved from 2.55 to 2.65.

FNB’s overall NII increased 17% driven by growth in both advances (8%) and deposits (12%) and the positive endowment effect from higher interest rates.

The domestic retail lending businesses continued to show good growth on the back of the transactional cross-sell strategy. Despite some new business strain, particularly in unsecured, credit quality remains in line with expectations and credit appetite was tightened in the second half of the year.

Retail deposits again grew above market on the back of ongoing acquisition of core transactional accounts, and further strong momentum in sales of new products. The commercial segment also showed good new customer acquisition supporting advances and deposits growth.

SEGMENT ANALYSIS OF ADVANCES AND DEPOSIT GROWTH

Deposit growth Advances growth

Segments % R billion % R billion

Retail 14 21.9 6 14.3

Commercial 9 14.5 15 10.1

The table below shows that FNB’s deliberate focus on acquiring and cross-selling to a “sweet spot” transactional retail and commercial customer has continued to generate high quality NII growth.

Year-on-year growth

Customer segment

Customer numbers

%

Unsecuredadvances

%Deposits

%

Consumer 4 2 8

Premium 10 27 18

Commercial 14 – 9

As expected, bad debts and NPLs are starting to trend up following strong book growth in previous periods and the worsening economic cycle. NPLs in FNB’s domestic unsecured books which have seen the strongest growth in new business, are trending in line with expectations and reflect the quality of new business written, appropriate pricing for risk and the effectiveness of FNB’s customer segment and sub-segment origination strategies. NPLs were impacted by the adoption of a reclassification of distressed loans in the year under review. When the impact of this reclassification is excluded, total NPLs increased 8% year-on-year.

Overall provisioning levels have remained conservative with some of the overlays being incorporated into the models, in line with expectations. Utilisation of certain overlays will continue into the next financial year as modelled portfolio impairments continue to increase.

FNB’s NIR growth of 6% was robust particularly given the impact of the reduction in interchange fees, which became effective March 2015. Fee and commission income benefited from strong volume growth of 12% with ongoing momentum across the electronic channels, again demonstrating the success of FNB’s electronic migration strategy. There was some negative impact from a reduction in cash-related NIR and the cost of rewards (+14%) linked to e-migration and cross-sell strategy.

Cost growth was well contained at 8%. The cost-to-income ratio decreased to 55.0% from 56.9%.

RMBRMB represents the bank’s activities in the corporate and investment banking segments in South Africa, the broader African continent and India. The business strategy is anchored around its corporate and institutional clients and leverages a market-leading origination franchise to deliver an integrated corporate and investment banking value proposition. This, combined with an expanding market making and distribution product offering, contributes to a well diversified and sustainable earnings base. This strategy is underpinned by sound risk management, designed to effectively balance the interplay between profit growth, returns and earnings volatility.

RMB FINANCIAL HIGHLIGHTS


Normalised earnings 3 692 3 754 (2)

Normalised profit before tax 5 128 5 218 (2)

Total assets 375 527 352 714 6




RMB produced satisfactory results for the year, which was achieved against a challenging macroeconomic environment and highlights the resilience and diversification of RMB’s portfolio of businesses. RMB’s balance sheet remains robust, with high quality earnings and solid operational leverage despite platform investments and increasing regulatory and compliance spend.

RMB’s organisational structure continues to be based on its four separate divisions, namely Investment Banking Division (IBD), Global Markets, Private Equity and Corporate Banking, however, the business is managed on a core activity basis.

In addition, during the year, the business model was further refined to more closely reflect the core activity view. All activities relating to the corporate and transactional banking pillar have been grouped in the Corporate Banking business unit. These include the transactional banking, trade and working capital, and global foreign exchange activities, some of which were previously reported in Global Markets. As a consequence of these refinements, the business unit view has been amended and is outlined in the table below.

BREAKDOWN OF PROFIT CONTRIBUTION


Normalised PBT

Investment Banking 4 028 4 194 (4)

IBD 3 729 3 108 20

Global Markets 1 100 1 175 (6)

Private Equity* (128) (79) 62

Other RMB (673) (10) >100

Corporate Banking 1 100 1 024 7

Total RMB 5 128 5 218 (2)

* The majority of private equity activities are in FRIHL.

IBD delivered an excellent performance, underpinned by strong fee income on the back of key advisory and underwriting mandates secured. It was achieved despite muted balance sheet growth and margin compression resulting from disciplined financial resource allocation designed to achieve return profile preservation. Additional proactive provisioning, particularly in the mining, and oil and gas portfolios, has strengthened the portfolio coverage ratio as the corporate sector enters a weaker credit cycle.


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Corporate Banking produced strong profit growth on the back of greater leveraging of platforms and client bases. Liability-raising initiatives yielded positive results with higher deposit balances and an enhanced liquidity profile. Earnings benefited from increased demand for structured and traditional trade products, whilst the global foreign exchange business profited from currency volatility and increased client flows.

Global Markets delivered satisfactory results, with standout performance in foreign currency and commodities, benefiting from heightened volatility levels, which drove spreads wider and contributed to increased deal flow. In addition, the negative impact of the December events on fixed income reversed in the second half, producing a good result given the levels of liquidity and flow in interest rate markets. Earnings were, however, constrained by a specific credit event related to a client impacted by the foreign exchange volatility, a reduction in structuring activity year-on-year and a decline in liquidity in corporate credit trading activities post December.

Unallocated franchise costs, central portfolio overlays, endowment on allocated capital, legacy portfolios and RMB Resources are reflected in Other RMB. The legacy portfolio curtailed losses to R16 million in the current year, whilst central credit overlays of R300 million were raised against the oil and gas portfolios. The RMB Resources business reported a loss of R266 million, on the back of impairments taken against the high yield debt portfolio, which remains under pressure as a result of the downturn in the commodity cycle. As previously indicated, RMB is exiting these activities and is undertaking an orderly unwind of the portfolio with no new investments.

WesBankWesBank represents the bank’s activities in asset-based finance and related products in the retail, commercial and corporate segments of South Africa, and asset-based motor finance through MotoNovo Finance in the UK. Through the Direct Axis brand, WesBank also operates in the personal loans market in South Africa. WesBank’s leading position in its chosen markets is due to its long-standing alliances with leading motor manufacturers, suppliers and dealer groups, and strong point-of-sale presence.

WESBANK FINANCIAL HIGHLIGHTS



Normalised profit before tax 3 564 2 705 32

Total assets 169 050 157 554 7


NPLs (%) 3.81 3.55



Net interest margin (%) 4.86 4.69

WesBank delivered a very strong performance off a high base and in a very tough economic operating environment, producing a 32% increase in pre-tax profits to R3.6 billion. The increasing level of diversification in WesBank’s portfolio of businesses has positioned the franchise well to weather the domestic credit cycle, and deliver more sustainable, less volatile earnings.

The table below shows the relative year-on-year performance of WesBank’s activities.

BREAKDOWN OF PROFIT CONTRIBUTION BY ACTIVIT Y*


Normalised PBT

VAF

– Retail SA 1 731 1 480 17

– MotoNovo (UK)** 950 455 >100

– Corporate and commercial 385 265 45

Personal loans 498 505 (1)

Total WesBank 3 564 2 705 32

* Refer to additional segmental disclosure on page 20.

** Normalised PBT for MotoNovo (UK) up 74% to GBP 44 million.

MotoNovo’s prior year profits were negatively impacted by R550 million from a prospective change in accounting treatment for incentive commissions on securitisation transactions. On a like-for-like basis, normalised profits would have declined slightly as a result of the quantum and timing of the securitisations.

Advances showed solid growth of 7% for the year mainly driven by resilient new business volumes in MotoNovo (UK) and the local VAF portfolios. Year-on-year growth in production in personal loans, however, was impacted by the NCA amendments. Overall new business production was up 18% with VAF and MotoNovo origination volumes up 2% and 36% (in GBP terms), respectively. All new business volumes continue to reflect good quality and overall risk profile remains in line with current credit appetite.

Interest margins have held up well despite higher funding and liquidity costs and the continued shift in mix from fixed to floating rate business.

As anticipated, bad debts in the local VAF portfolio are trending upwards but remain within through-the-cycle thresholds and WesBank continues to be conservatively provided. NPLs as a percentage of advances are up and remain inflated by the high proportion of restructured debt review accounts, most of which are still paying according to arrangement, have never defaulted or have balances lower than when they entered debt review. Vintage performance continues to be closely monitored.

WesBank’s NIR growth of 11% was driven by satisfactory new business volumes in the domestic portfolios and a strong performance from MotoNovo.

Operating expenses grew 8%, mainly driven by investment in growth initiatives in MotoNovo, which continues to expand its footprint and product offering in the UK.

Balance sheet strengthCapital positionCurrent targeted ranges and actual ratios are summarised below..

% CET1 Tier 1 Total

Regulatory minimum* 6.9 8.1 10.4

Targets 10.0 – 11.0 >12.0 >14.0

Actual** 13.9 14.2 17.1

* Excludes the bank-specific individual capital requirement and add-on for domestic systemically important banks.

** FRB including foreign branches. Includes unappropriated profits.

The bank has maintained its strong capital position. Capital planning is undertaken on a three-year forward-looking basis, and the level and composition of capital is determined taking into account business unit organic growth plans and stress-testing scenario outcomes. In addition, the bank considers external issues that could impact capital levels, which include regulatory and accounting changes, macroeconomic conditions and future outlook.

The bank continues to actively manage capital composition and, to this end, issued approximately R4.9 billion Basel III-compliant Tier 2 instruments in the domestic market during the past 12 months. This resulted in a more efficient capital composition which is closely aligned with the group’s internal targets. It remains the group’s intention to continue optimising its capital stack by frequently issuing Tier 2 instruments, either in the domestic and/or international markets. This ensures sustainable support for ongoing growth initiatives and also compensates for the haircut applied to Tier 2 instruments which are not compliant with Basel III.

MANAGEMENT OF FINANCIAL RESOURCES

The management of the group’s financial resources which it defines as capital, funding and liquidity, and risk appetite (in all currencies), is critical and supportive to the achievement of FirstRand’s stated growth and return targets, and is driven by the group’s overall risk appetite.

Forecast growth in both earnings and balance sheet risk weighted assets is based upon the macroeconomic outlook and then evaluated against the financial resources available with the requirements of the providers of capital and regulators also taken into account. The expected outcomes and constraints are then stress tested and the group sets financial and prudential targets through different business cycles and scenarios, thus enabling it to deliver on its commitments to stakeholders at a defined confidence level.

The management of the group’s financial resources is executed through Group Treasury and is independent of the operating franchises. This ensures the required level of discipline is applied in the allocation of financial resources and pricing of these resources. This also ensures that Group Treasury’s mandate is aligned with the operating franchises’ growth, return and volatility targets, in order to deliver shareholder value.

Given the high levels of uncertainty and volatility in funding markets, the group is exploring strategic options to protect its counterparty status to maintain access to financial markets and hard-currency funding in the event of a sovereign ratings downgrade. Since the year end, the group (through its wholly-owned subsidiary FirstRand Securities Limited) has become a member of the interest rate derivatives clearing service, SwapClear, one of the clearing platforms provided by multi-national clearing house, LCH. This will be key to execution of the rest of Africa strategy and growing MotoNovo.

The relative contribution to the bank’s normalised earnings mix and growth rates from types of income and business units are shown in the table below.

SEGMENT ANALYSIS OF NORMALISED EARNINGS

R million 2016%

composition 2015%

composition%

change

Retail 8 585 49 7 487 49 15

FNB 6 295 5 729

WesBank 2 290 1 758

Commercial 4 633 27 3 931 25 18

FNB 4 349 3 711

WesBank 284 220

Corporate and investment banking 3 692 21 3 754 25 (2)

RMB 3 692 3 754

Other 441 3 74 1 >100

Dividends paid on NCNR preference shares (219) (207)

FCC (including Group Treasury) and elimination adjustments 660 281



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Liquidity positionTaking into account the liquidity risk introduced by its business activities across various currencies, the group’s objective is to optimise its funding profile within structural and regulatory constraints to enable its franchises to operate in an efficient and sustainable manner. Liquidity buffers are actively managed via high quality liquid assets that are available as protection against unexpected events or market disruptions. The quantum and composition of the available sources of liquidity are defined by the behavioural funding liquidity at risk and the market liquidity depth of available liquidity resources. In addition, adaptive overlays to liquidity requirements are derived from stress testing and scenario analysis of the cash inflows and outflows related to business franchise activity.

The bank exceeds the 70% (2015: 60%) minimum liquidity coverage ratio as set out by the Basel Committee for Banking Supervision (BCBS) with a Liquidity Coverage Ratio (LCR) for the bank of 102% (2015: 84%). At 30 June 2016, the bank’s available HQLA sources of liquidity per the LCR was R141 billion, with an additional R11 billion of management liquidity available.

Regulatory changesOn 18 November 2015, the SARB released a proposed directive related to the Net Stable Funding Ratio (NSFR). The SARB believes that the BCBS calibration does not reflect the actual stability of institutional funding in the SA context, given the significant barriers preventing liquidity from leaving the domestic financial system. It has, therefore, proposed a 35% available stable funding factor for institutional funding less than six months in tenor, compared to 0% under the BCBS framework. It is expected that this change will significantly assist the SA banking sector in meeting the NSFR requirements without severely impacting the economy. FirstRand expects to be fully compliant with NSFR requirements on the new calibration..

PROSPECTS

Domestic GDP growth is expected to remain low throughout the 2017 financial year. Ongoing political and policy uncertainty, combined with an even more constrained global growth scenario, will continue to pose further downside risk.

Inflation will remain above the top end of the target band for the rest of 2016 year and into 2017 with some further increases in administered pricing anticipated whilst the SARB is moving towards the peak of the tightening cycle, event risk remains high.

The rand is expected to remain weak against the USD for the foreseeable future and could weaken further if domestic socio-economic uncertainty intensifies, the Fed hikes US rates aggressively and rating agencies downgrade the foreign currency sovereign rating by more than one notch.

Rest of Africa GDP is expected to average around 2.5% – 4% over the near term. Downside risks include the impact of Brexit, slowing Chinese trend growth along with a rebalancing of its growth dynamic away from resource intensive investment towards consumption. This will continue to weigh on the outlook for commodity prices. Dollar strength poses a challenge to countries that have high levels of foreign debt.

Against these short- to medium-term challenges, both domestic and regional, the bank expects credit growth to remain subdued, particularly as the origination businesses also continue to cut appetite in higher risk segments. Volumes in the transactional activities are expected to remain resilient despite lower economic activity mainly on the back of the leading market positions the franchises enjoy. Ongoing innovation in product and channel rollout will support this, as will the acquisition of new customers and cross-sell.

The group remains committed to growing economic profits on a sustainable basis and will continue to only allocate capital to growth initiative’s that maximise returns. It remains confident that the quality of its portfolio of businesses, the strength of its balance sheet, ongoing discipline in resource allocation and the strategies it is currently investing in will ensure ongoing growth and superior returns to its shareholders.

EVENTS AFTER THE REPORTING PERIOD (AUDITED)

The directors are not aware of any material events that have occurred between the date of the statement of financial position and the date of this report.

BOARD CHANGES

The following changes to the board of directors have taken place.

Appointments Effective date

JP Burger Chief executive officer 1 October 2015

AP Pullinger Deputy chief executive officer and executive director 1 October 2015

PJ Makosholo Non-executive director 1 October 2015

F Knoetze Non-executive director 1 April 2016

Resignations Effective date

SE Nxasana Chief executive officer and executive director 30 September 2015

KB Schoeman Non-executive director 30 September 2015

L Crouse Non-executive director 31 March 2016


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Net interest income before impairment of advances 3 722 2 305 2 583 5 911 14 521 7 646 8 22 175 4 019 1 557 5 576 9 081 1 501 38 333 (2 790) 35 543

Impairment of advances (387) (565) (1 078) (755) (2 785) (397) 2 (3 180) (514) (162) (676) (2 694) 295 (6 255) 257 (5 998)

Net interest income after impairment of advances 3 335 1 740 1 505 5 156 11 736 7 249 10 18 995 3 505 1 395 4 900 6 387 1 796 32 078 (2 533) 29 545

Non-interest revenue 331 1 591 829 8 736 11 487 6 496 621 18 604 5 337 1 593 6 930 2 635 (908) 27 261 1 602 28 863

Income from operations 3 666 3 331 2 334 13 892 23 223 13 745 631 37 599 8 842 2 988 11 830 9 022 888 59 339 (931) 58 408

Operating expenses (1 705) (1 966) (1 046) (9 041) (13 758) (7 669) (986) (22 413) (4 731) (1 881) (6 612) (5 226) (1 141) (35 392) 357 (35 035)

Income before tax 1 961 1 365 1 288 4 851 9 465 6 076 (355) 15 186 4 111 1 107 5 218 3 796 (253) 23 947 (574) 23 373

Indirect tax (13) (49) (18) (283) (363) (36) (2) (401) (83) (7) (90) (232) (40) (763) – (763)

Profit for the year before tax 1 948 1 316 1 270 4 568 9 102 6 040 (357) 14 785 4 028 1 100 5 128 3 564 (293) 23 184 (574) 22 610

Income tax expense (545) (368) (356) (1 281) (2 550) (1 691) 100 (4 141) (1 128) (308) (1 436) (990) 953 (5 614) 154 (5 460)

Profit for the year 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 660 17 570 (420) 17 150

Attributable to

Ordinary equityholders 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (420) 16 931

NCNR preference shareholders – – – – – – – – – – – – 219 219 – 219


Attributable earnings to ordinary shareholders 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (420) 16 931

Headline earnings adjustments – – – – – – – – – – – – – – 28 28

Headline earnings 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (392) 16 959

IAS 19 adjustment – – – – – – – – – – – – – – (102) (102)

TRS adjustment – – – – – – – – – – – – – – 494 494

Normalised earnings 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 – 17 351

Cost-to-income ratio (%) 42.1 50.5 30.7 61.7 52.9 54.2 >100 55.0 50.6 59.7 52.9 44.6 >100 54.0 – 54.4

Diversity ratio (%) 8.2 40.8 24.3 59.6 44.2 45.9 98.7 45.6 57.0 50.6 55.4 22.5 (>100) 41.6 – 44.8

Credit loss ratio (%) 0.21 2.73 7.20 5.66 1.20 0.55 (0.33) 1.04 0.24 0.48 0.27 1.65 (0.04) 0.84 – 0.85

NPLs as a percentage of advances (%) 2.46 3.46 6.81 5.48 3.03 2.49 18.66 2.93 1.42 0.34 1.27 3.81 – 2.43 – 2.59

Income statement includes

Depreciation (6) (5) (5) (1 342) (1 358) (33) (4) (1 395) (103) (3) (106) (461) (27) (1 989) – (1 989)

Amortisation – – – (12) (12) – (1) (13) (6) – (6) (22) (5) (46) – (46)

Net impairment charges – – – 5 5 – – 5 (44) 2 (42) (77) – (114) – (114)

Statement of financial position includes

Advances (after ISP – before impairments) 187 806 21 968 16 090 14 343 240 207 77 224 761 318 192 216 383 34 442 250 825 168 992 40 897 778 906 (47 814) 731 092

– Normal advances 187 806 21 968 16 090 14 343 240 207 77 224 761 318 192 208 615 34 442 243 057 168 992 4 270 734 511 (3 419) 731 092

– Credit-related assets – – – – – – – – 7 768 – 7 768 – 36 627 44 395 (44 395) –

NPLs net of ISP 4 628 759 1 095 786 7 268 1 922 142 9 332 3 073 116 3 189 6 432 – 18 953 – 18 953

Total deposits 131 1 557 2 178 459 180 149 167 399 758 348 306 98 168 105 222 203 390 62 274 715 826 473 – 826 473

Total assets 186 396 21 229 14 774 32 983 255 382 76 790 1 148 333 320 339 258 36 269 375 527 169 050 153 682 1 031 579 – 1 031 579

Total liabilities 186 017 20 575 14 207 23 093 243 892 73 236 1 507 318 635 336 224 34 919 371 143 165 582 94 300 949 660 – 949 660

Capital expenditure – 3 7 2 636 2 646 33 – 2 679 73 2 75 1 306 10 4 070 – 4 070

The segmental analysis is based on the management accounts for the respective segments.

* FNB Africa results reported above relate to head office costs and FNB’s activities in India. Earnings of the African subsidiaries form part of FREMA (see simplified group structure on page 01) and are not reported in bank.

** Refer to additional segmental disclosure on page 20.

SEGMENT REPORTfor the year ended 30 June 2016

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Impairment of advances (387) (565) (1 078) (755) (2 785) (397) 2 (3 180) (514) (162) (676) (2 694) 295 (6 255) 257 (5 998)


Non-interest revenue 331 1 591 829 8 736 11 487 6 496 621 18 604 5 337 1 593 6 930 2 635 (908) 27 261 1 602 28 863

Income from operations 3 666 3 331 2 334 13 892 23 223 13 745 631 37 599 8 842 2 988 11 830 9 022 888 59 339 (931) 58 408

Operating expenses (1 705) (1 966) (1 046) (9 041) (13 758) (7 669) (986) (22 413) (4 731) (1 881) (6 612) (5 226) (1 141) (35 392) 357 (35 035)

Income before tax 1 961 1 365 1 288 4 851 9 465 6 076 (355) 15 186 4 111 1 107 5 218 3 796 (253) 23 947 (574) 23 373

Indirect tax (13) (49) (18) (283) (363) (36) (2) (401) (83) (7) (90) (232) (40) (763) – (763)

Profit for the year before tax 1 948 1 316 1 270 4 568 9 102 6 040 (357) 14 785 4 028 1 100 5 128 3 564 (293) 23 184 (574) 22 610

Income tax expense (545) (368) (356) (1 281) (2 550) (1 691) 100 (4 141) (1 128) (308) (1 436) (990) 953 (5 614) 154 (5 460)


Attributable to

Ordinary equityholders 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (420) 16 931



Attributable earnings to ordinary shareholders 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (420) 16 931

Headline earnings adjustments – – – – – – – – – – – – – – 28 28

Headline earnings 1 403 948 914 3 287 6 552 4 349 (257) 10 644 2 900 792 3 692 2 574 441 17 351 (392) 16 959

IAS 19 adjustment – – – – – – – – – – – – – – (102) (102)

TRS adjustment – – – – – – – – – – – – – – 494 494



Diversity ratio (%) 8.2 40.8 24.3 59.6 44.2 45.9 98.7 45.6 57.0 50.6 55.4 22.5 (>100) 41.6 – 44.8

Credit loss ratio (%) 0.21 2.73 7.20 5.66 1.20 0.55 (0.33) 1.04 0.24 0.48 0.27 1.65 (0.04) 0.84 – 0.85



Depreciation (6) (5) (5) (1 342) (1 358) (33) (4) (1 395) (103) (3) (106) (461) (27) (1 989) – (1 989)

Amortisation – – – (12) (12) – (1) (13) (6) – (6) (22) (5) (46) – (46)

Net impairment charges – – – 5 5 – – 5 (44) 2 (42) (77) – (114) – (114)



– Normal advances 187 806 21 968 16 090 14 343 240 207 77 224 761 318 192 208 615 34 442 243 057 168 992 4 270 734 511 (3 419) 731 092


NPLs net of ISP 4 628 759 1 095 786 7 268 1 922 142 9 332 3 073 116 3 189 6 432 – 18 953 – 18 953

Total deposits 131 1 557 2 178 459 180 149 167 399 758 348 306 98 168 105 222 203 390 62 274 715 826 473 – 826 473

Total assets 186 396 21 229 14 774 32 983 255 382 76 790 1 148 333 320 339 258 36 269 375 527 169 050 153 682 1 031 579 – 1 031 579

Total liabilities 186 017 20 575 14 207 23 093 243 892 73 236 1 507 318 635 336 224 34 919 371 143 165 582 94 300 949 660 – 949 660

Capital expenditure – 3 7 2 636 2 646 33 – 2 679 73 2 75 1 306 10 4 070 – 4 070





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Impairment of advances (111) (191) (715) (743) (1 760) (365) (3) (2 128) (596) (177) (773) (2 358) 266 (4 993) 637 (4 356)


Non-interest revenue 305 1 436 757 8 511 11 009 6 006 501 17 516 5 336 1 510 6 846 2 376 (1 681) 25 057 4 159 29 216

Income from operations 3 742 3 101 2 274 12 562 21 679 12 095 502 34 276 8 679 2 619 11 298 7 773 630 53 977 1 112 55 089

Operating expenses (1 689) (1 772) (916) (8 625) (13 002) (6 901) (824) (20 727) (4 412) (1 611) (6 023) (4 830) (1 011) (32 591) (907) (33 498)

Income before tax 2 053 1 329 1 358 3 937 8 677 5 194 (322) 13 549 4 267 1 008 5 275 2 943 (381) 21 386 205 21 591

Indirect tax (35) (44) (18) (300) (397) (39) (1) (437) (73) 16 (57) (238) (19) (751) – (751)

Profit for the year before tax 2 018 1 285 1 340 3 637 8 280 5 155 (323) 13 112 4 194 1 024 5 218 2 705 (400) 20 635 205 20 840

Income tax expense (565) (360) (375) (1 018) (2 318) (1 444) 90 (3 672) (1 176) (288) (1 464) (727) 681 (5 182) (57) (5 239)

Profit for the year 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 281 15 453 148 15 601

Attributable to

Ordinary equityholders 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 148 15 394



Attributable earnings to ordinary shareholders 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 148 15 394

Headline earnings adjustments – – – – – – – – – – – – – – (7) (7)

Headline earnings 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 141 15 387

IAS 19 adjustment – – – – – – – – – – – – – – (107) (107)

TRS adjustment – – – – – – – – – – – – – – (34) (34)



Diversity ratio (%) 7.9 43.6 25.3 64.0 47.0 48.2 99.2 48.1 57.5 54.0 56.7 23.5 (>100) 42.5 – 49.1

Credit loss ratio (%) 0.06 1.08 5.42 6.82 0.91 0.58 0.88 0.76 0.29 0.56 0.33 1.54 (0.04) 0.73 – 0.66



Depreciation (6) (5) (1) (1 170) (1 182) (24) (3) (1 209) (66) (3) (69) (411) (28) (1 717) – (1 717)

Amortisation – – – (3) (3) – – (3) (8) – (8) (36) (3) (50) – (50)

Net impairment charges – – – (3) (3) – – (3) – – – – 2 (1) – (1)



– Normal advances 180 208 19 488 13 856 12 315 225 867 67 147 443 293 457 197 468 33 192 230 660 157 982 6 594 688 693 (3 216) 685 477


NPLs net of ISP 4 585 407 680 505 6 177 1 466 80 7 723 1 925 352 2 277 5 603 – 15 603 (50) 15 553

Total deposits 155 1 467 1 156 676 158 299 152 912 409 311 620 94 076 98 083 192 159 53 275 871 779 703 – 779 703

Total assets 178 987 18 895 12 787 30 417 241 086 66 580 579 308 245 316 633 36 081 352 714 157 554 131 446 949 959 – 949 959

Total liabilities 178 390 18 171 12 118 22 080 230 759 63 478 903 295 140 313 381 34 764 348 145 154 915 76 762 874 962 – 874 962

Capital expenditure – 3 7 2 639 2 649 33 23 2 705 172 3 175 826 6 3 712 – 3 712




SEGMENT REPORTfor the year ended 30 June 2015

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Impairment of advances (111) (191) (715) (743) (1 760) (365) (3) (2 128) (596) (177) (773) (2 358) 266 (4 993) 637 (4 356)


Non-interest revenue 305 1 436 757 8 511 11 009 6 006 501 17 516 5 336 1 510 6 846 2 376 (1 681) 25 057 4 159 29 216

Income from operations 3 742 3 101 2 274 12 562 21 679 12 095 502 34 276 8 679 2 619 11 298 7 773 630 53 977 1 112 55 089

Operating expenses (1 689) (1 772) (916) (8 625) (13 002) (6 901) (824) (20 727) (4 412) (1 611) (6 023) (4 830) (1 011) (32 591) (907) (33 498)

Income before tax 2 053 1 329 1 358 3 937 8 677 5 194 (322) 13 549 4 267 1 008 5 275 2 943 (381) 21 386 205 21 591

Indirect tax (35) (44) (18) (300) (397) (39) (1) (437) (73) 16 (57) (238) (19) (751) – (751)

Profit for the year before tax 2 018 1 285 1 340 3 637 8 280 5 155 (323) 13 112 4 194 1 024 5 218 2 705 (400) 20 635 205 20 840

Income tax expense (565) (360) (375) (1 018) (2 318) (1 444) 90 (3 672) (1 176) (288) (1 464) (727) 681 (5 182) (57) (5 239)


Attributable to

Ordinary equityholders 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 148 15 394



Attributable earnings to ordinary shareholders 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 148 15 394

Headline earnings adjustments – – – – – – – – – – – – – – (7) (7)

Headline earnings 1 453 925 965 2 619 5 962 3 711 (233) 9 440 3 018 736 3 754 1 978 74 15 246 141 15 387

IAS 19 adjustment – – – – – – – – – – – – – – (107) (107)

TRS adjustment – – – – – – – – – – – – – – (34) (34)



Diversity ratio (%) 7.9 43.6 25.3 64.0 47.0 48.2 99.2 48.1 57.5 54.0 56.7 23.5 (>100) 42.5 – 49.1

Credit loss ratio (%) 0.06 1.08 5.42 6.82 0.91 0.58 0.88 0.76 0.29 0.56 0.33 1.54 (0.04) 0.73 – 0.66



Depreciation (6) (5) (1) (1 170) (1 182) (24) (3) (1 209) (66) (3) (69) (411) (28) (1 717) – (1 717)

Amortisation – – – (3) (3) – – (3) (8) – (8) (36) (3) (50) – (50)

Net impairment charges – – – (3) (3) – – (3) – – – – 2 (1) – (1)



– Normal advances 180 208 19 488 13 856 12 315 225 867 67 147 443 293 457 197 468 33 192 230 660 157 982 6 594 688 693 (3 216) 685 477


NPLs net of ISP 4 585 407 680 505 6 177 1 466 80 7 723 1 925 352 2 277 5 603 – 15 603 (50) 15 553

Total deposits 155 1 467 1 156 676 158 299 152 912 409 311 620 94 076 98 083 192 159 53 275 871 779 703 – 779 703

Total assets 178 987 18 895 12 787 30 417 241 086 66 580 579 308 245 316 633 36 081 352 714 157 554 131 446 949 959 – 949 959

Total liabilities 178 390 18 171 12 118 22 080 230 759 63 478 903 295 140 313 381 34 764 348 145 154 915 76 762 874 962 – 874 962

Capital expenditure – 3 7 2 639 2 649 33 23 2 705 172 3 175 826 6 3 712 – 3 712





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Year ended 30 June 2016

R million

VAF

Personal loans

Total WesBank

Retail Corporate

and commercial

South AfricaMotoNovo

(UK)

NII before impairment of advances 4 344 1 808 670 2 259 9 081

Impairment of advances (1 366) (338) (15) (975) (2 694)

Normalised profit before tax 1 731 950 385 498 3 564


Advances 98 377 28 866 29 879 11 870 168 992

NPLs 4 857 126 321 1 128 6 432

Advances margin (%) 3.76 5.65 2.40 19.52 4.86

NPLs (%) 4.94 0.44 1.07 9.50 3.81

Credit loss ratio (%) 1.41 1.36 0.05 8.73 1.65

Year ended 30 June 2015

R million

VAF

Personal loans

Total WesBank

Retail Corporate

and commercial

South AfricaMotoNovo

(UK)

NII before impairment of advances 4 082 933 702 2 038 7 755

Impairment of advances (1 217) (163) (149) (829) (2 358)

Normalised profit before tax 1 480 455 265 505 2 705


Advances 95 759 20 923 30 828 10 472 157 982

NPLs 4 163 75 462 903 5 603

Advances margin (%) 3.71 5.69 2.56 19.60 4.69

NPLs (%) 4.35 0.36 1.50 8.62 3.55

Credit loss ratio (%) 1.27 0.96 0.49 8.45 1.54

ADDITIONAL SEGMENTAL DISCLOSURE – WESBANK

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incomestatementanalysispg 22 – 34


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NET INTEREST INCOME (BEFORE IMPAIRMENT OF ADVANCES) – UP 13%

21 468

24 901

29 544

33 913

38 333

NET INTEREST INCOMER million

Net interest income

13 14 15 16 12

CAGR 16% 8.0

7.5

7.0

6.5

6.0

5.5

5.0

4.5

Daily average repo 5.74%

Dec10

Jun10

Jun11

Dec11

Jun12

Dec12

Jun13

Dec13

Jun14

Dec14

Jun16

Dec15

Jun15

Daily average repo 6.42%

REPO RATE%

Note: 2013 to 2016 figures have been prepared in terms of IFRS 10 and 11, and the revised IAS 19.

Note: R154 billion = average endowment book for the year. Rates were higher by 68 bps on average in the current year, which translates into a positive endowment impact of approximately R1 049 million.

MARGIN CASCADE TABLE

Percentage of average interest-earning banking assets %

June 2015 normalised margin 5.02

Capital and endowment benefit 0.19

Advances 0.10

– Change in balance sheet mix 0.03

– Asset pricing 0.07

Liabilities (0.08)

– Change in balance sheet mix (deposits) 0.04

– Term funding cost (0.08)

– Deposit pricing (0.04)

Group Treasury and other movements (0.06)

– MTM vs accrual on term issuance in professional funding (0.04)

– Increase in HQLA (0.05)

– Other accounting mismatches and interest rate risk hedges 0.03

June 2016 normalised margin 5.17

p23

ACTIVIT Y ANALYSIS OF NET INTEREST INCOME BEFORE IMPAIRMENT OF ADVANCES

Year ended 30 June


Net interest income

Lending 17 640 16 414 7

Transactional* 12 498 10 061 24

Deposits 2 690 2 434 11

Capital endowment 4 280 3 340 28

Group Treasury 598 1 307 (54)

Other (negative endowment, e.g fixed assets) 627 357 76

Total net interest income 38 333 33 913 13

* Includes NII related to transactional deposit products and related deposit endowment, overdrafts and credit cards.

KEY DR IVERS

Positive endowment effect from the 25 bps increases in the repo rate in July and November 2015 and March 2016, and 50 bps in January 2016 (an average increase of 68 bps in the repo rate for the year).

Higher capital levels further underpinned NII growth.

Strong advances and deposit growth of 8% and 6%, respectively, boosted NII.

An increase in FNB margins mainly due to endowment on increased deposit base. Advances growth and repricing benefits in card, retail overdrafts and FNB loans, were, to some extent, offset by higher funding and liquidity costs.

WesBank’s margins increased as a result of the change in mix of the advances portfolio and strong book growth in MotoNovo (UK), offset by an increase in funding and liquidity costs, and increased market pricing competitiveness.

Investment banking advances margins were negatively impacted by higher term funding and liquidity costs as well as competitive pricing pressure locally and internationally, resulting in constrained long-term asset and margin growth.

A decrease of R74 million (2015: R77 million increase) in the dollar funding carry costs relating to excess dollar liquidity, impacted by the deployment of a portion of the funding of assets during the current year.

R319 million (2015: R196 million ) positive mark-to-market movement in the non-hedge accounted interest rate risk management hedge positions. These will pull to par in future periods.

A reduction of R282 million in the mark-to-market movements (2015: positive R347 million) on fair value term funding instruments due to movements in the domestic yield curve. These movements will reverse over the duration of the underlying instruments. These are long-dated instruments.

With the liquidity coverage ratio (LCR) becoming a prudential regulatory requirement from 1 January 2015, higher holdings of HQLA resulted in lower interest margins in the bank.



p24

AVERAGE BALANCE SHEET

June 2016 June 2015

R million NotesAverage

balance#,†

Interest income/

(expense)Average

rate % Average balance

Interest income/(expense)

Average rate %

INTEREST-EARNING ASSETS

Average prime rate 9.92 9.24

Balances with central banks 18 506 – – 17 225 – –

Cash and cash equivalents 13 457 341 2.53 14 756 369 2.50

Liquid assets portfolio 89 339 6 513 7.29 61 382 4 334 7.06

Loans and advances to customers 1 620 413 66 210 10.67 582 194 57 827 9.93

Interest-earning assets 741 715 73 064 9.85 675 557 62 530 9.26

INTEREST-BEARING LIABILITIES

Average JIBAR 6.59 6.05

Deposits due to customers 2 (439 698) (19 291) 4.39 (393 539) (15 123) 3.84

Group Treasury funding (266 855) (16 785) 6.29 (249 744) (14 735) 5.90

Interest-bearing liabilities (706 553) (36 076) 5.11 (643 283) (29 858) 4.64

ENDOWMENT AND TRADING BOOK

Other assets* 190 890 – – 134 616 – –

Other liabilities** (145 697) – – (98 098) – –

NCNR preference shareholders (3 000) – – (3 000) – –

Equity (77 355) – – (65 792) – –

Endowment and trading book (35 162) 1 345 (3.83) (32 274) 1 241 (3.85)

Total interest-bearing liabilities, endowment and trading book (741 715) (34 731) 4.68 (675 557) (28 617) 4.24

Net interest margin on average interest-earning assets 741 715 38 333 5.17 675 557 33 913 5.02

Interest income is the gross interest received on assets and interest expense is the gross interest paid on liabilities.* Includes preference share advances, trading assets and securitisation notes.** Includes trading liabilities.# Includes level 1 HQLA.† Includes level 2 HQLA and corporate bonds not qualifying as HQLA.

p25

NOTE 1 – MARGIN ANALYSIS ON LOANS AND ADVANCES TO CUSTOMERS

June 2016 June 2015**

R millionAverage balance

Average margin %

Average balance

Average margin %

Average prime rate (RSA) 9.92 9.24

ADVANCES

Retail – secured 308 452 2.70 290 538 2.65

Residential mortgages 185 354 1.73 175 750 1.77

VAF 123 098 4.15 114 788 3.98

Retail – unsecured 61 469 12.56 52 094 12.42

Card 21 194 9.63 17 732 9.10

Personal loans 26 237 17.07 22 947 17.08

– FNB loans 15 204 15.29 13 233 15.24

– WesBank loans 11 033 19.52 9 714 19.60

Overdrafts 14 038 8.55 11 415 8.21

Corporate and commercial 250 492 2.39 239 562 2.42

FNB commercial 70 804 3.53 60 918 3.70

– Mortgages 16 776 2.49 14 580 2.62

– Overdrafts 25 808 4.53 21 840 4.87

– Term loans 28 220 3.24 24 498 3.30

WesBank corporate 30 143 2.40 29 598 2.56

RMB investment banking* 119 932 1.82 123 014 1.92

RMB corporate banking 29 613 1.90 26 032 1.62

Total advances 620 413 3.55 582 194 3.43

The loans and advances margins are calculated using total net interest as a percentage of gross advances before impairments. Average balances are daily averages for FNB and WesBank, and monthly averages for RMB.* Assets under agreements to resell and preference share advances are excluded from loans and advances to customers.** 2015 margins have been restated due to segmentation.

Margin analysis on advances and deposits to customers is based on net interest income as a percentage of average advances/deposits. Net interest income is calculated as the difference between the client rate (earned or paid) and the transfer pricing rate (earned or paid by Group Treasury), the average margin is, therefore, net of funds transfer pricing.

The group operates a transfer pricing framework that incorporates liquidity costs and benefits into product pricing, including any regulatory costs for all significant business activities on- and off-balance sheet, thereby aligning liquidity risk-taking incentives of individual business units with the liquidity risk exposure this activity creates for the group as a whole.

Where fixed-rate commitments are undertaken (fixed-rate loans or fixed deposits), transfer pricing will also include the interest rate transfer price.



p26

NOTE 2 – MARGIN ANALYSIS ON DEPOSITS DUE TO CUSTOMERS

June 2016 June 2015*

R millionAverage balance

Average margin %

Average balance

Average margin %

Average prime rate (RSA) 9.92 9.24

DEPOSITS

Retail 153 868 3.00 134 941 2.86

Current and savings 52 016 6.37 47 393 5.59

Call 2 633 3.01 2 928 2.84

Money market 35 457 1.51 29 164 1.65

Term 63 762 1.07 55 456 1.15

Commercial 159 720 2.80 141 837 2.57


Call 39 072 1.35 35 235 1.29

Money market 21 164 2.10 19 381 2.01

Term 39 762 0.45 33 463 0.46

Corporate and investment banking 126 110 0.78 116 761 0.69


Call 28 890 0.48 36 857 0.22

Term 40 388 0.23 30 958 0.28

Total deposits 439 698 2.29 393 539 2.11

Average balances are daily averages for FNB and WesBank, and monthly averages for RMB.

* 2015 margins have been restated due to segmentation.

p27

CREDIT HIGHLIGHTS

06 07 08 16

1.21.5

2.9

0.610.85

1.080.84

2.2

NPLs as a % of advances

Credit loss ratio %

Credit loss ratio % (excluding merchant acquiring event)

09

5.7

1.89

10

5.0

1.39

11

4.4

0.98

12

3.6

0.99

1.14

13

2.9

0.97

14

2.3

0.81

15

0.73

1.01

NPLs AND IMPAIRMENT HISTORY

2.40.1 D7*

2.3

Year ended 30 June


Total gross advances – including credit-related assets* 778 906 718 771 8

NPLs – including credit-related assets 18 953 15 603 21

NPLs as a % of advances – including credit-related assets 2.43 2.17

Impairment charge – including credit-related assets 6 255 4 993 25

Impairment charge as a % of average advances – including credit-related assets 0.84 0.73

Total impairments* 14 818 13 514 10

– Portfolio impairments 7 510 7 109 6

– Specific impairments 7 308 6 405 14

Implied loss given default (coverage)** 38.6 41.0

Total impairments coverage ratio# 78.2 86.6

Performing book coverage ratio† 0.99 1.01

* Includes cumulative credit fair value adjustments.

** Amortised cost specific impairments and non-performing book cumulative credit fair value adjustments as a percentage of NPLs. # Total amortised cost impairments and total cumulative credit fair value adjustments as a percentage of NPLs. † Portfolio impairments as a percentage of the performing book.

* Further information is on page 28.



p28

The credit loss ratio increased from 73 bps in June 2015 to 84 bps, reflecting the deteriorating macroeconomic environment, resulting in increased specific impairments and the creation of additional portfolio impairments during the year. This represents a 25% increase.

Operational NPLs increased 15% excluding the impact of the distressed debt reclassification, as detailed below.

This has, in part been driven by strong book growth in card, FNB loans and other retail, although advances growth rates have moderated from the comparative period.

Prior to the year under review, FNB and WesBank adopted different approaches to the treatment of unsecured loans customers currently in debt review. FNB did not specifically reference debt review as a default event, i.e. classified as NPLs, whereas WesBank classified all unsecured and VAF debt review customers as NPLs whether in arrears or not. Following an assessment in the current year of the SARB Directive 7, the bank took the opportunity to align FNB to WesBank’s classification (D7), which is even more stringent than the SARB requirements. As a result, in the current year FNB migrated all unsecured loans debt review customers from performing or arrears to NPLs.

For residential mortgages (secured loans) the treatment now is to reflect all debt review customers which are currently performing (i.e. no instalment in arrears under the original contract) to the arrears bucket. Accounts that were two months in arrears were relegated to NPLs.

The consequence of this reclassification was minimal on the actual impairment charge, however, NPLs across all FNB retail portfolios increased R953 million in the current year, contributing a 6% increase to bank NPLs (up 21%) and 0.3% to the ratio of retail NPLs as a % of advances.

Given that these paying distressed debt customers have a lower LGD (loss given default) experience, the overall coverage per product reduces.

The table below details the impact to NPLs in the current year across the FNB portfolios and in total for the bank.

R millionOperational

NPLsReclassified

NPLs Total NPLsTotal NPLs% increase

OperationalNPLs

% change

Residential mortgages 4 253 375 4 628 1 (7)

Card 559 200 759 86 37

Personal loans 843 252 1 095 61 24

Retail other 660 126 786 56 31

Total NPLs 18 000 953 18 953 21 15

Operational NPLs include distressed debt review that migrated into NPLs through the normal ageing process (≥3 instalments past due) prior to the reclassification in the current year.

The bank continues to adopt the policy of not rescheduling paying debt review customers to performing status irrespective of payment behaviour under debt review requirements. This is more conservative than the allowed treatment under D7 rehabilitation/curing requirements which allow the customers to be reclassified as “performing” once at least six consecutive payments are received. The next phase of the alignment project will agree the write off policies across the unsecured products and the bank will take cognisance of IFRS 9 principles.

Debt review coverage Non-debt review coverage Total NPL coverage

Coverage ratio (%) 2016 2015 2016 2015 2016 2015

FNB credit card 43.0 –* 76.0 72.7 67.3 72.7

FNB retail other 43.0 –* 75.6 77.6 70.4 77.4

FNB loans 66.7 –* 70.1 74.3 69.3 74.3

WesBank loans** 32.6 46.6 70.2 67.7 41.2 52.8

VAF** 18.3 25.2 40.5 38.4 29.5 31.9

* 2015 not restated for FNB and coverage not calculated.** The debt review coverage reduced year-on-year due to the increasing proportions of older paying debt review accounts, consistent with prior year

trends.

The total impairment coverage ratio reduced to 78.2% from 86.6% at June 2015 given the change in NPL mix and the impact of paying debt review customers. The increase in portfolio impairments was driven by strong book growth in the unsecured lending portfolios, specifically personal loans and card, and FNB retail other. Additional portfolio impairments of >R300 million were created in RMB against the broader resources portfolios. The performing book coverage ratio of 99 bps reduced marginally from the prior year of 101 bps. This was largely as a result of the partial central overlay release, given the previously identified risk manifesting with the NPL formation increasing in some of the underlying franchises and products over the last 12 months, resulting in higher specific impairments.

p29

KEY DR IVERS

Retail NPLs as a % of advances increased 18% to 3.53% (2015: 3.21%), impacted by a marginal increase of R43 million in residential mortgage NPLs largely due to the D7 definition change. The turn of the cycle, resulting in lower cure rates and an increase in new NPL formation across the portfolio, is expected to continue.

A 61% increase in FNB loans and 86% increase in card NPLs, reflecting the worsening macro environment, new book strain and the impact of implementation of D7. D7 amounted to 61% and 57%, respectively, of the increase in NPLs in these portfolios.

SA retail VAF and WesBank personal loans NPLs increased 17% and 25% respectively. Restructured debt review accounts, a large proportion of which are performing, as well as the worsening cycle impacted NPL formation.

Corporate and commercial NPLs increased 29%. Specific impairments, however, increased only 1% due to significant collateral held on the related NPLs. This resulted in the coverage ratio lowering to 44.1% from 56.5% in June 2015.

Post write-off recoveries remained robust at R1.86 billion (2015: R1.83 billion) driven by card, the unsecured retail lending portfolios and VAF.

NON-INTEREST REVENUE – UP 9%

49.4

46.043.5 42.5 41.6

20 985 21 23622 736

25 057

27 261

NON-INTEREST REVENUE AND DIVERSITY RATIO

Non-interest revenue (R million)

NIR and associate and joint venture income as a % of total income (diversity ratio)

13 14 15 16 12

NIR CAGR 7%


ANALYSIS OF NON-INTEREST REVENUE

Year ended 30 June

R million Notes 2016 2015 % change

Fee and commission income 1 21 297 20 009 6

Markets, client and other fair value income 2 2 807 2 522 11

Investment income 91 74 23

Other non-interest revenue 3 3 066 2 452 25

Total non-interest revenue 27 261 25 057 9

NIR growth was satisfactory given the negative regulatory impact of the reduction in interchange fees which became effective on 16 March 2015, resulting in a negative “drag” of c.R300 million, as well as the difficult macro environment. The overall negative impact was cushioned by increased transaction volumes during the year, assisted by the change in eBucks rewards.

Fee and commission income growth was pleasing given these factors, benefiting from robust volume growth specifically in the electronic channels, in line with FNB’s strategy. Fee and commission income represents 78% (2015: 80%) of total NIR.

The downward trend in the diversity ratio, despite very strong growth in NIR over the past five years, results from strong deposit growth together with endowment impacts, specific credit strategies, including strong corporate advances growth, change in mix in retail and repricing strategies. NIR was also impacted by lower absolute transactional fees as a result of e-migration and regulatory pressures, as mentioned above.



p30

NOTE 1 – FEE AND COMMISSION INCOME – UP 6%

Year ended 30 June


Bank commissions and fee income 21 342 20 292 5

– Card commissions 3 062 3 342 (8)

– Cash deposit fees 1 752 1 724 2

– Commissions on bills, drafts and cheques 1 963 1 727 14

– Bank charges* 14 565 13 499 8

Knowledge-based fees 1 337 976 37

Management and fiduciary fees 683 577 18

Insurance income 1 210 1 045 16

Other non-bank commissions 638 513 24

Gross fee and commission income 25 210 23 403 8

Fee and commission expenditure (3 913) (3 394) 15

Total fee and commission income 21 297 20 009 6

* Bank charges include annual and monthly administrative fees, fees for customer transaction processing, e.g. SASwitch fees, cash withdrawal fees, debit order charges, internet banking fees, and utilisation of other banking services.

KEY DR IVERS

FNB grew NIR 6%, negatively affected by the year-on-year reduction of c.R300 million (8%) in interchange fees (decreasing card commissions) and an increase of 14% (R176 million) in allocated rewards, in line with strategy to migrate clients to electronic transaction channels.

Financial transaction volume growth remained robust at 12%, benefiting from increased product cross-sell and up-sell, and an increase of 4% in the active customer base, with growth of 10% in Premium. Insurance revenues grew 16%. Absolute growth in fee income was curtailed by the continued strategy to migrate customers to electronic channels.

Electronic volumes increased 13%, while manual volumes grew marginally above 2%.

Increase intransactionvolumes %

Mobile (excluding prepaid) 21

Internet banking 4

Cheque card 11

Banking app 76

ADT/ATM cash deposits 24

WesBank’s NIR growth of 11% was underpinned by satisfactory new business volumes of 18%, and a strong performance from MotoNovo (UK).

Knowledge-based fees remained robust, underpinned by solid levels of M&A advisory income as well as high levels of structuring fees due to strong deal flow, specifically relating to developed market cross-border activity with some notable deals concluded during the year.

p31

NOTE 2 – MARKETS, CLIENT AND OTHER FAIR VALUE INCOME – UP 11%

Year ended 30 June


Client* 1 201 1 623 (26)

Markets 1 532 769 99

Other 74 130 (43)

Total 2 807 2 522 11

* The review of RMB’s organisational business model has led to further refinement of disclosures.

KEY DR IVERS

Client revenues remained resilient, specifically in currency-facilitation, albeit at lower levels than the comparative period. Trading conditions in SA remained under pressure on the back of increased competition and compressed margins.

The results from the structuring business was more muted in the current financial year, negatively impacted by a specific credit event related to a client impacted by the foreign exchange volatility and a reduction in structuring activity year-on-year.

The markets business was positively impacted by soft and hard commodity prices, coupled with increased gold demand from the Indian market. Flow trading and residual risk activities remained robust, benefiting from increased volatility and volumes, specifically in the foreign exchange and inflation desks, with a resilient performance from the fixed income business post the significant rate volatility experienced in December 2015.

The decrease in other fair value is primarily due to movement in the net TRS fair value income impacted by the R8.48 reduction in the group’s share price in comparison to the R12.57 increase in the share price in the prior year.

NOTE 3 – OTHER NON-INTEREST REVENUE – UP 25%

Other NIR includes rental income, with the most significant rental income being the WesBank fixed maintenance rental income, and smart box and speedpoint rental.

The bank provides various services to other entities in the group, for which it earns income. This income is included in other NIR and has shown strong growth.



p32

OPERATING EXPENSES – UP 9%

24 737 26 02429 807

32 59135 392

42 45346 137

52 280

58 970

65 594

OPERATING JAWS

Total income

Operating expenditure

13 14 15 1612

R million

58.3 56.4 57.0 55.3 54.0

24 73726 024

29 807

32 591

35 392

OPERATING EFFICIENCY

Operating expenditure (R million)

Cost-to-income ratio (%)

13 14 15 16 12


OPERATING EXPENSES

Year ended 30 June


Staff expenditure 20 724 19 169 8

– Direct staff expenditure 13 257 11 558 15

– Other staff-related expenditure 7 467 7 611 (2)

Depreciation 1 989 1 717 16

Amortisation of other intangible assets 46 50 (8)

Advertising and marketing 1 025 1 044 (2)

Insurance 225 209 8

Lease charges 1 189 1 093 9

Professional fees 1 521 1 259 21

Audit fees 288 244 18

Computer expenses 1 577 1 388 14

Maintenance 1 070 871 23

Telecommunications 251 264 (5)

Cooperation agreements and joint ventures 579 871 (34)

Property 767 763 1

Business travel 350 319 10

Other operating expenditure 3 791 3 330 14

Total operating expenses 35 392 32 591 9

p33

KEY DR IVERS

Cost growth was 9% with core costs, excluding new investment and “build the business” system and platform costs, growing 7%.

This was primarily driven by lower variable costs resulting from moderation in the level of income generation and a relative change in income mix in the current year.

Overall cost growth reflects ongoing investment in capacity and expansion initiatives, and was also negatively impacted by the rand depreciating against international currencies year-on-year.

% change Reasons

Direct staff costs 15 Unionised increases in excess of 9% in August 2015 and a reallocation of >R200 million between other staff costs to direct staff cost relating to Pension Fund contributions and currency depreciation in foreign branches.

Other staff-related expenditure

(2) The moderation from 12% in the year to June 2015 is directly related to lower levels of profitability and NIACC growth in the current year, and lower IFRS 2 share-based payment expenses given the negative move in the group’s share price during the year.

The increase of 16% in depreciation was impacted by increased investment in infrastructure, e.g. ATMs/ADTs over the last few years, ongoing investment in electronic platforms and the commissioning of new premises over the previous two financial years.

The 21% growth in professional fees and 14% growth in computer expenses reflect increased spend on development, implementation and improvement projects related to various electronic platforms, additional compliance-related projects, as well as the impact of the rand depreciation during the year.

The increase in audit fees are partly driven by additional audit costs of new businesses and additional non-audit service spend relating to IFRS 9 implementation as well as other group projects.

DIRECT TAXATION – UP 8%

The bank’s effective tax rate reduced marginally from 25.1% to 24.2%, impacted by slower growth in standard rated NII and NIR, e.g. fee and commission income during the year.



p34

p35

balance sheet analysis andfinancial resourcemanagementpg 36 – 70


p36

ECONOMIC VIEW OF THE BALANCE SHEET

The structure of the balance sheet reflects the group’s strategy since 2009 to increase balance sheet resilience, diversify credit exposures across sectors and segments, and increase market liquidity with less reliance on institutional funding.

When assessing the underlying risk in the balance sheet, the bank’s asset profile is dominated by a balanced advances portfolio, which constitutes 79% of total assets. The composition of the net advances portfolio consists of retail secured (41%), retail unsecured (8%) and corporate and commercial (49%) with 92% of advances rated B or better. Total NPLs were R18 953 million (2.43% as a percentage of advances) with a credit loss ratio of 0.84%.

Cash and cash equivalents, and liquid assets represent 5% and 9%, respectively, of total assets. Only a small portion of assets relates to the investment and trading businesses. Market risk arising from trading activities has remained low.

The funding profile continues to reflect the structural funding issues associated with the South African banking sector, however, the bank has continued to reduce its reliance on institutional funding and has further improved the term profile of institutional funding from a weighted average remaining term of 12 months in 2009 to 31 months at 30 June 2016 (2015: 31 months).

The bank’s capital ratios remained strong with the CET1 ratio 13.9%, Tier 1 ratio 14.2% and total capital adequacy ratio 17.1%. Gearing decreased to 13.1 times (2015: 13.5 times).

Retail secured 41%*

Retail unsecured 8%*

Corporate and commercial 49%*

Rest of Africa and other 2%Equity investments and trading 2%Cash and cash equivalents 5%

Liquid assets 9%

Other assets 5%

Institutional funding 33%**, †

Foreign and offshore funding 7%**

CIB 17%**

Commercial 20%**

Retail 22%**

Capital 8%#

Other liabilities 5%

Assets

AAA/A

26%*

4%*

BBB

BB36%*

B+/B

7%* B- and lowerDefault

Deposits = 85%

Rating

Net a

dvan

ces

= 7

9%

Liabilities and equity1%*

ECONOMIC VIEW OF THE BALANCE SHEET%

26%*

* As a proportion of loans and advances.

** As a proportion of deposit franchise.# Ordinary equity and NCNR preference shares and Tier 2 liabilities (2%).† Includes RMB institutional funding and foreign branch platform.

Note: Derivative-, securities lending- and short trading position assets and liabilities have been netted off.

p37

ADVANCES – UP 8%

718 771

24 735 7 759 1 250

2015

11 010 15 381

778 906

FNB RMBinvestment

banking

RMBcorporatebanking

WesBank FCC(including

GroupTreasury)

2016

GROSS ADVANCES GROWTH BY FRANCHISER million

ADVANCES

As at 30 June


Normalised gross advances 778 906 718 771 8

Normalised impairment of advances (14 818) (13 514) 10

Normalised net advances 764 088 705 257 8

Advances growth moderated from 11% for the interim reporting period ended December 2015 to 8% for the financial year.

Growth rates moderated across most retail portfolios compared to the prior year as well as compared to the first half of the financial year, reflecting the impact of the continued deterioration in the macro environment, the rising interest rate cycle and the bank’s resultant reduced risk appetite.

The SA macro environment, adverse commodity cycle and higher funding costs contributed to a dampening in the corporate portfolio growth rates over the last 12 to 18 months. This coupled with disciplined financial resource allocation, margin compression and continued proactive provisioning contributed to muted balance sheet growth in the corporate portfolio. Satisfactory growth continued in the commercial portfolio, although moderating in the second half of the financial year.



p38

Advances continued

PORTFOL IO /PRODUCT % CHANGE KEY DR IVERS

FNB retail 6

Residential mortgages 4 Continued strong growth of 13% in secured affordable housing, on the back of client demand.

3% growth in FNB HomeLoans, with growth marginally below nominal house price inflation.

Card 13 Underpinned by targeted client acquisition, increased client migration as well as increased limits and utilisation, primarily in the Premium segment. Growth in Consumer card was flat given reduced risk appetite.

Personal loans 16 Growth slowed down from 19% recorded in the six month period to December 2015 reflecting a more conservative origination appetite since November 2015.

Retail other 16 Growth driven by increases in transactional banking accounts (primarily overdrafts), although moderating from the prior year, reflecting lower risk appetite, slowing customer acquisition and more competitive pressures.

FNB commercial 15 Reflects targeted new client acquisition in the business segment, resulting in growth of 19% in Agric, 15% commercial property finance and 13% in specialised finance advances.

RMB* 2 Growth in the SA advances book slowed from the 7% recorded in the prior year, reflecting the constrained macro environment and competitive pressures. Cross-border growth was up 11% in USD terms. The introduction of the LCR with effect from 1 January 2015 and the resultant creation of HQLA, in addition to the macro environment, resulted in growth of 4% in RMB’s core advances book, down from 7% in the prior year.

WesBank 7 Strong growth of 36% in GBP terms in new business volumes in MotoNovo, driven by increased volumes, new products and increased footprint.

Overall growth in advances was negatively impacted by new business volumes of 2% in SA Retail VAF, impacted by the 12% negative year-on-year new passenger vehicle sales in South Africa and an increase of 10% in new business volumes in WesBank loans, reflecting a reduction in risk appetite in light of the macro environment.

Corporate new business volumes reflected 4% growth, reflecting the difficult macro environment.

* Excludes assets under agreements to resell.

p39

Credit strategy is managed as part of the broader financial resource management process and is aligned with the bank’s view of the trends in the wider economy.

CREDIT HIGHLIGHTS AT A GLANCE

The table below summarises key information on advances, NPLs and impairments in the credit portfolio.

Year ended 30 June

R million Notes 2016 2015 % change

Total gross advances – including credit-related assets* 1 778 906 718 771 8

NPLs – including credit-related assets 2 18 953 15 603 21

NPLs as a % of advances – including credit-related assets 2 2.43 2.17

Impairment charge – including credit-related assets 3 6 255 4 993 25

Impairment charge as a % of average advances – including credit-related assets 3 0.84 0.73

Total impairments* 4 14 818 13 514 10

– Portfolio impairments 7 510 7 109 6

– Specific impairments 7 308 6 405 14

Implied loss given default (coverage)** 4 38.6 41.0

Total impairments coverage ratio# 78.2 86.6

Performing book coverage ratio† 0.99 1.01

* Includes cumulative credit fair value adjustments.

** Amortised cost specific impairments and non-performing book cumulative credit fair value adjustments as a percentage of NPLs. # Total amortised cost impairments and total cumulative credit fair value adjustments as a percentage of NPLs. † Portfolio impairments as a percentage of the performing book.

The notes referred to in the table above are detailed on the following pages. Certain comparatives have been restated to reflect the current segmentation of the business.

The credit information in this section is presented on a normalised basis. The normalised basis differs from IFRS, firstly, in that the credit fair value adjustments on fair value advances are reversed to reflect the advances and impairments as if accounted for on an accrual basis. Secondly, certain investment securities designated as HQLA and certain corporate bonds have been reclassified as loans and advances. The adjustments had the following impact:

advances were increased with HQLA and corporate bonds of R47 814 million (2015: R33 294 million) inclusive of statement of financial position credit fair value adjustments of R3 419 million (2015: R3 424 million); and

IFRS credit impairments in the statement of comprehensive income were adjusted to include the credit fair value adjustment impact of R257 million (2015: R637 million). Under IFRS, these are accounted for under NIR.

CREDIT



p40

Credit continued

NOTE 1: ANALYSIS OF ADVANCES

SEGMENTAL ANALYSIS OF ADVANCES

Advances

As at 30 June

% change 2016

% composition R million 2016 2015

Retail 379 320 353 021 7 50

Retail – secured 315 049 296 890 6 42

Residential mortgages 187 806 180 208 4 25

VAF 127 243 116 682 9 17

– SA 98 377 95 759 3 13

– MotoNovo (UK)* 28 866 20 923 38 4

Retail – unsecured 64 271 56 131 15 8

Card 21 968 19 488 13 3

Personal loans 27 960 24 328 15 4

– FNB 16 090 13 856 16 2

– WesBank 11 870 10 472 13 2

Retail other 14 343 12 315 16 1

Corporate and commercial 378 225 349 285 8 47

FNB commercial 77 224 67 147 15 10

WesBank corporate 29 879 30 828 (3) 4

RMB investment banking 216 383 208 624 4 28

RMB corporate banking 34 442 33 192 4 4

HQLA corporate advances** 20 297 9 494 >100 1

FNB Africa# 761 443 72 –

FCC (including Group Treasury) 20 600 16 022 29 3

Securitisation notes 14 641 7 301 >100 2

Other 5 959 8 721 (32) 1

Total advances 778 906 718 771 8 100

Of which:

Accrual book 532 530 491 021 8 68

Fair value book† 246 376 227 750 8 32

* MotoNovo (UK) book GBP 1.47 billion (+34%).

** Managed by the Group Treasurer.# Includes activities in FNB India.† Including advances classified as available-for-sale.

p41

The table below reflects assets under agreements to resell included in the RMB corporate and investment banking loan books.

Advances

As at 30 June

% change 2016

% compositionR million 2016 2015

Corporate and investment banking advances 250 825 241 816 4 100

Less: assets under agreements to resell (40 818) (35 600) 15 (16)

RMB advances net of assets under agreements to resell 210 007 206 216 2 84

SECTOR AND GEOGRAPHICAL ANALYSIS OF ADVANCES

Advances

As at 30 June

% change 2016

% compositionR million 2016 2015

Gross advances 780 374 720 142 8 100

Less: interest in suspense (1 468) (1 371) 7 –

Advances net of interest in suspense 778 906 718 771 8 100

Sector analysis

Agriculture 28 032 25 216 11 4

Banks 10 674 16 651 (36) 1

Financial institutions 101 303 83 746 21 13

Building and property development 39 315 33 012 19 5

Government, Land Bank and public authorities 19 524 17 610 11 3

Individuals 366 556 341 998 7 47

Manufacturing and commerce 86 185 87 451 (1) 11

Mining 16 426 23 715 (31) 2

Transport and communication 19 320 16 806 15 2

Other services 91 571 72 566 26 12

Total advances 778 906 718 771 8 100

Geographic analysis

South Africa 708 002 647 514 9 91

Other Africa 25 740 29 801 (14) 3

UK 32 255 29 553 9 4

Other Europe 6 155 5 153 19 1

North America 798 308 >100 –

South America 952 718 33 –

Australasia 409 2 >100 –

Asia 4 595 5 722 (20) 1

Total advances 778 906 718 771 8 100



p42

Credit continued

NOTE 2: ANALYSIS OF NPLs

SEGMENTAL VIEW OF NPLs

NPLs NPLs as a % of advances

As at 30 June

% change 2016

% composition

As at 30 June

R million 2016 2015 2016 2015

Retail 13 379 11 318 18 70 3.53 3.21

Retail – secured 9 611 8 823 9 50 3.05 2.97

Residential mortgages 4 628 4 585 1 24 2.46 2.54

VAF 4 983 4 238 18 26 3.92 3.63

– SA 4 857 4 163 17 25 4.94 4.35

– MotoNovo (UK) 126 75 68 1 0.44 0.36

Retail – unsecured 3 768 2 495 51 20 5.86 4.44

Card 759 407 86# 4 3.46 2.09

Personal loans 2 223 1 583 40 12 7.95 6.51

– FNB 1 095 680 61# 6 6.81 4.91

– WesBank 1 128 903 25 6 9.50 8.62

Retail other 786 505 56# 4 5.48 4.10

Corporate and commercial 5 432 4 205 29 29 1.44 1.20

FNB commercial 1 922 1 466 31 10 2.49 2.18

WesBank corporate 321 462 (31) 2 1.07 1.50

RMB investment banking 3 073 1 925 60 16 1.42 0.92

RMB corporate banking 116 352 (67) 1 0.34 1.06

HQLA corporate advances* – – – – – –

FNB Africa** 142 80 78 1 18.66 18.06

FCC (including Group Treasury) – – – – – –

Securitisation notes – – – – – –

Other – – – – – –

Total NPLs 18 953 15 603 21 100 2.43 2.17

Of which:

Accrual book 16 321 13 726 19 86 3.06 2.80

Fair value book 2 632 1 877 40 14 1.07 0.82

* Managed by the Group Treasurer.

** Includes activities in FNB India.# Including the impact of debt review reclassification. Refer to page 28 for additional information.

p43

SECTOR AND GEOGRAPHIC ANALYSIS OF NPLs

NPLs NPLs as a % of advances

As at 30 June

% change 2016

% composition

As at 30 June

R million 2016 2015 2016 2015

Sector analysis

Agriculture 394 220 79 2 1.41 0.87

Banks 41 – >100 – 0.38 –

Financial institutions 91 97 (6) – 0.09 0.12

Building and property development 1 237 1 391 (11) 7 3.15 4.21

Government, Land Bank and public authorities 12 9 33 – 0.06 0.05

Individuals 13 027 10 992 19 69 3.55 3.21

Manufacturing and commerce 765 1 021 (25) 4 0.89 1.17

Mining 2 013 811 >100 11 12.25 3.42

Transport and communication 195 125 56 1 1.01 0.74

Other services 1 178 937 26 6 1.29 1.29

Total NPLs 18 953 15 603 21 100 2.43 2.17

Geographic analysis

South Africa 16 675 14 726 13 88 2.36 2.27

Other Africa 1 569 674 >100 8 6.10 2.26

UK 126 75 68 1 0.39 0.25

Other Europe 62 48 29 – 1.01 0.93

North America 379 – >100 2 47.49 –

South America – – – – 0.00 –

Australasia – – – – 0.00 –

Asia 142 80 78 1 3.09 1.40

Total NPLs 18 953 15 603 21 100 2.43 2.17



p44

Credit continued

SECURIT Y AND RECOVERABLE AMOUNTS BY PORTFOLIO

2016 2015

R million NPLs

Security held and expected

recoveriesSpecific

impairment# NPLs

Security held and expected

recoveriesSpecific

impairment#

Retail 13 379 8 564 4 815 11 318 7 349 3 969

Retail – secured 9 611 7 085 2 526 8 823 6 523 2 300

Residential mortgages 4 628 3 614 1 014 4 585 3 662 923

VAF 4 983 3 471 1 512 4 238 2 861 1 377

– SA 4 857 3 422 1 435 4 163 2 833 1 330

– MotoNovo (UK) 126 49 77 75 28 47

Retail – unsecured 3 768 1 479 2 289 2 495 826 1 669

Card 759 248 511 407 111 296

Personal loans 2 223 999 1 224 1 583 601 982

– FNB 1 095 336 759 680 175 505

– WesBank 1 128 663 465 903 426 477

Retail other 786 232 554 505 114 391

Corporate and commercial 5 432 3 035 2 397 4 205 1 831 2 374

FNB commercial 1 922 988 934 1 466 623 843

WesBank corporate 321 134 187 462 180 282

RMB investment banking 3 073 1 842 1 231 1 925 759 1 166

RMB corporate banking 116 71 45 352 269 83

HQLA corporate advances* – – – – – –

FNB Africa** 142 46 96 80 18 62

FCC (including Group Treasury) – – – – – –

Securitisation notes – – – – – –

Other – – – – – –

Total 18 953 11 645 7 308 15 603 9 198 6 405


** Includes activities in FNB India.# Specific impairment includes cumulative credit fair value adjustments on NPLs.

p45

NOTE 3: INCOME STATEMENT CREDIT IMPAIRMENTS

INCOME STATEMENT IMPAIRMENTS

Total impairment charge As a % of average advances

As at 30 June

% change

As at 30 June

R million 2016 2015 2016 2015

Retail 5 464 3 969 38 1.49 1.17

Retail – secured 2 091 1 491 40 0.68 0.52

Residential mortgages 387 111 >100 0.21 0.06

VAF 1 704 1 380 23 1.40 1.22

– SA 1 366 1 217 12 1.41 1.27

– MotoNovo (UK) 338 163 >100 1.36 0.96

Retail – unsecured 3 373 2 478 36 5.60 4.81

Card 565 191 >100 2.73 1.08

Personal loans 2 053 1 544 33 7.85 6.71

– FNB 1 078 715 51 7.20 5.42

– WesBank 975 829 18 8.73 8.45

Retail other 755 743 2 5.66 6.82

Corporate and commercial 1 088 1 287 (15) 0.30 0.39

FNB commercial 397 365 9 0.55 0.58

WesBank corporate 15 149 (90) 0.05 0.49

RMB investment banking 514 596 (14) 0.24 0.29

RMB corporate banking 162 177 (8) 0.48 0.56

HQLA corporate advances* – – – – –

FNB Africa** (2) 3 (>100) (0.33) 0.88

FCC (including Group Treasury)# (295) (266) 11 (0.04) (0.04)

Securitisation notes – – n/a – –

Other (295) (266) 11 (0.04) (0.04)

Total impairment charge 6 255 4 993 25 0.84 0.73

Of which:

Portfolio impairment charge 564 318 77 0.08 0.05

Specific impairment charge 5 691 4 675 22 0.76 0.68


** Includes activities in FNB India.# Percentages calculated on total average advances.



p46

Credit continued

NOTE 4: BALANCE SHEET IMPAIRMENTS AND COVERAGE RATIOS

The bank constantly monitors market conditions as well as recent and expected recoveries on NPLs to determine coverage ratios.

IMPLIED LOSS GIVEN DEFAULT AND TOTAL IMPAIRMENT COVERAGE RATIOS

Balance sheet impairments Coverage ratios (% of NPLs)

As at 30 June

% change

As at 30 June

R million 2016 2015 2016 2015

Specific impairments*

Retail 4 815 3 969 21 36.0 35.1

Retail – secured 2 526 2 300 10 26.3 26.1

Residential mortgages 1 014 923 10 21.9 20.1

VAF** 1 512 1 377 10 30.3 32.5

– SA 1 435 1 330 8 29.5 31.9

– MotoNovo (UK) 77 47 64 61.1 62.7

Retail – unsecured 2 289 1 669 37 60.7 66.9

Card** 511 296 73 67.3 72.7

Personal loans** 1 224 982 25 55.1 62.0

– FNB 759 505 50 69.3 74.3

– WesBank 465 477 (3) 41.2 52.8

Retail other** 554 391 42 70.4 77.4

Corporate and commercial 2 397 2 374 1 44.1 56.5

FNB commercial 934 843 11 48.6 57.5

WesBank corporate 187 282 (34) 50.4 61.0

RMB investment banking 1 231 1 166 6 40.1 60.6

RMB corporate banking 45 83 (46) 38.8 23.6

HQLA corporate advances#

FNB Africa† 96 62 55 67.6 77.5

FCC (including Group Treasury) – – – – –

Securitisation notes – – – – –

Other – – – – –

Total specific impairments/implied loss given default^ 7 308 6 405 14 38.6 41.0

Portfolio impairments‡ 7 510 7 109 6 39.6 45.6

Total impairments/total impairment coverage ratio~ 14 818 13 514 10 78.2 86.6

* Specific impairments including credit fair value adjustments relating to the non-performing fair value advances.** The coverage ratio has reduced due to restructured debt review accounts. These accounts are reported in NPLs even though the clients may be fully

performing in terms of the revised repayment terms, subject to monitoring under the group framework. # Managed by the Group Treasurer.† Includes FNB's activities in India.‡ Amortised cost portfolio impairments and credit fair value adjustments relating to the performing book as a percentage of NPLs.^ Amortised cost specific impairments and credit fair value adjustments as a percentage of NPLs.~ Total impairments and credit fair value adjustments as a percentage of NPLs.

p47

The graph below provides the NPL distribution across all portfolios, showing decreases in the proportion of residential mortgages and an increase in unsecured lending since June 2015.

Jun 16

28%

Jun 15

16%

27%

29%

30%

Corporate and commercial

Retail – unsecured

VAF

Mortgages

20%

26%

24%

NPL DISTRIBUTION

RECONCILIATION OF IMPAIRMENTS

The following table provides an analysis of the balance sheet amortised cost impairments and fair value adjustments.

BALANCE SHEET IMPAIRMENTS AND CREDIT FAIR VALUE ADJUSTMENTS

As at 30 June

Amortised cost book Fair value book Total book

R million 2016 2015 2016 2015 2016 2015

Non-performing book 6 243 5 239 1 065 1 166 7 308 6 405

Performing book 5 156 4 851 2 354 2 258 7 510 7 109

Total impairments 11 399 10 090 3 419 3 424 14 818 13 514



p48

Credit continued

The following table provides a reconciliation of amortised cost specific impairments.

BALANCE SHEET SPECIFIC IMPAIRMENTS – AMORTISED COST

As at 30 June


Opening balance 5 239 4 995 5

Reclassifications and transfers 86 50 78

(Disposals)/acquisitions (23) 12 (>100)

Exchange rate difference 7 7 –

Unwinding and discounted present value on NPLs (77) (80) (4)

Bad debts written off (6 451) (5 586) 15

Net new impairments created 7 462 5 841 28

Closing balance 6 243 5 239 19

The bank’s income statement charge continues to benefit from increased post write-off recoveries in the retail book. The bank incorporates adjustments to loans that are held at fair value through profit or loss in the calculation of the total impairment charge.

The following table provides an analysis of the income statement impact of amortised cost impairments and credit fair value adjustments.

INCOME STATEMENT IMPAIRMENTS

As at 30 June


Specific impairment charge (amortised cost) 7 462 5 841 28

Recoveries of bad debts written off (amortised cost) (1 856) (1 825) 2

Net specific impairment charge (amortised cost) 5 606 4 016 40

Portfolio impairment charge (amortised cost) 392 340 15

Credit fair value adjustments 257 637 (60)

– Non-performing book 85 659 (87)

– Performing book 172 (22) (>100)

Total impairments 6 255 4 993 25

p49

IMPACT OF POST WRITE-OFF RECOVERIES

Post write-off recoveries amounted to R1 856 million (2015: R1 825 million), primarily emanating from the unsecured retail lending portfolio.

23

74

3

Retail – secured

Retail – unsecured

Corporate and commercial

POST WRITE-OFF RECOVERIES SPLIT%

FNBloans

Retailother

2.39

5.12

3.53

10.73

2.27

11.00

Card WesBankloans

Impact of post write-off recoveries

Actual net charge

5.66

0.71

6.37

RETAIL CREDIT LOSS RATIOS AND RECOVERIES%

8.737.20

2.73



p50

Credit continued

RISK ANALYSES

The graphs below provide loan balance-to-value ratios and age distributions of residential mortgages.

Loan-to-value ratios for new business are an important consideration in the credit origination process. The bank, however, places more emphasis on counterparty creditworthiness as apposed to relying only on the underlying security.

2015 2016

≤ 70 71 – 80 81 – 90 91 – 100 > 100

52

61

1513

1512

14

9

4 5

RESIDENTIAL MORTGAGES BALANCE-TO-MARKET VALUE%

2015 2016

≤ 70 71 – 80 81 – 90 91 – 100 > 100

41

35

1416

1719

2324

56

RESIDENTIAL MORTGAGES BALANCE-TO-ORIGINAL VALUE%

2015 2016

1 – 36 months

36 – 72 months

72 – 108 months

Older than 108 months

4344

22 2322

16

13

17

RESIDENTIAL MORTGAGES AGE DISTRIBUTION%

p51

The following graph shows arrears in the FNB HomeLoans portfolio. It includes arrears where more than one full payment is in arrears expressed as a percentage of total advances. The increase in the last quarter reflects the reclassification of distressed debt as explained on page 28.

8

6

4

2

0Jun06

Jun08

Jun09

Jun10

Jun11

Jun12

Jun13

Jun15

Jun16

Jun14

Jun07

FNB HOMELOANS ARREARS%

The following graphs provide the vintage analyses for FNB HomeLoans, WesBank retail VAF, FNB card, FNB loans and WesBank loans. Vintage graphs reflect the default experience three, six and twelve months after each origination date as well as the impact of origination strategies and the macroeconomic environment on portfolio performance. It does not take into account the impact of cures or subsequent recoveries. As such, vintage graphs are not indicative of the actual credit impairment charge of a product.

Vintages in home loans have increased marginally from previous record low levels. The increase is attributed to the rate hiking cycle with consumers under pressure as a result of the most recent series of 125 bps interest rate increases over the 12-month performance period. Coupled with job losses and other challenges in the macroeconomic environment, this has caused a slight increase in the vintages

10

8

6

4

2

0Jun06

Jun08

Jun09

Jun10

Jun11

Jun12

Jun13

Jun15

Jun16

Jun14

Jun07

FNB HOMELOANS VINTAGE ANALYSIS%

12m

6m

3m



p52

Credit continued

The WesBank retail VAF cumulative vintage analysis continues to show a noticeable improvement in the quality of business written since mid-2007. This is due to improved customer profiles and enhanced collection strategies.

Since then, vintages are reflecting increases, this is expected given the challenging macroeconomic environment. Risk appetite has been adjusted, with a continued focus on originating a portfolio weighted towards quality low risk business. Vintage deterioration is closely monitored and credit parameters adjusted to ensure that performance remains in line with expectations when considering the credit cycle.

10

8

6

4

2

0Jun06

Jun08

Jun09

Jun10

Jun11

Jun12

Jun13

Jun15

Jun16

Jun14

Jun07

WESBANK RETAIL VAF VINTAGE ANALYSIS%

12m

6m

3m

FNB card default rates remain at low levels, even on a through-the-cycle basis. There was a minor increase in risk appetite from October 2013, which resulted in more business written in the lower-end consumer segment at slightly higher default rates. This was subsequently reviewed and adjusted downwards again. In the group’s view, default rates have bottomed and moderate increases are expected from this level.

14

12

10

8

6

4

2

0

FNB CARD VINTAGE ANALYSIS%

12m

6m

3m

Dec08

Jun09

Jun10

Jun11

Jun12

Jun13

Jun15

Jun16

Jun14

p53

The default experience of the FNB and WesBank personal loans portfolios is within risk appetite. There is continued action to ensure these portfolios remain within risk appetite.

Defaults in FNB personal loans have trended upwards of late, from historical low levels, as a result of the macroeconomic conditions.

18

15

12

9

6

3

0

FNB PERSONAL LOANS VINTAGE ANALYSIS%

12m

6m

3m

Jun10

Jun11

Jun12

Jun16

Jun13

Jun14

Jun15

Dec08

Jun09

As expected, WesBank personal loans vintages show a marginal deterioration from 2010 levels. This is expected given the challenging macroeconomic conditions and increased debt review applications.

To counter this, credit parameters are continuously adjusted to ensure performance is in line with expectations. Recent adjustments to credit appetite are proving effective and have assisted in countering macroeconomic conditions.

14

12

10

8

6

4

2

0Jun10

Jun11

Jun12

Jun16

Jun13

Jun14

Jun15

Dec08

Jun09

WESBANK PERSONAL LOANS VINTAGE ANALYSIS%

12m

6m

3m



p54

779 703

36 686 4 092 7 139

2015

9 (1 156)

826 473

FNB RMBinvestment

banking

RMBcorporatebanking

WesBank FCC(including

GroupTreasury)

2016

GROSS DEPOSIT GROWTH BY FRANCHISER million

Client deposits grew 9% with institutional funding, including term and structured issuances, increasing 2%.

KEY DR IVERS

FNB’s deposits increased 12%.

– Retail deposit growth of 14% was supported by ongoing product innovation, with particularly strong growth of 18% from the Premium segment.

– Commercial deposit growth of 9% was driven by new client acquisition and cross-sell.

GROWTH IN DEPOSIT BALANCES

Product %

Current accounts 9

Savings and transmission accounts 8

Fixed deposits 20

Notice deposits 11

RMB corporate banking grew deposits 7%, although average daily operational deposits increased 16%, driven by client acquisition and growth in existing client base, which led to an increase in both transactional and operational deposit balances, as well as new product innovation, which resulted in strong gains in certain products.

Group Treasury deposits remained flat, impacted by foreign currency funding and structured issuances in the domestic market. Absolute growth was affected by rand depreciation during the year.

DEPOSITS – UP 6%

p55

FUNDING MANAGEMENT

The following diagram illustrates the structural features of the banking sector in South Africa and its impact on liquidity risk.

Structural features Low discretionary savings;

Higher degree of contractual savings;

– pension funds;

– provident funds; and

– asset managers.

Corporates and public sector make use of financial intermediaries for bulking and maturity transformation services.

Risk mitigated to some extent by:

the closed rand system – rand transactions are cleared and settled through registered banks and clearing institutions domiciled in SA;

concentration of customer current accounts with the four largest banks;

prudential exchange control framework; and

the low dependency of SA banks on foreign currency funding.

Liquidity needs of banks

Deposit franchise

Institutional fundinga portion of these funds translate into

Higher structural liquidity risk in SA banks than in most other financial markets

INTRODUCTION AND OBJECTIVES

The group strives to fund its activities in a sustainable, diversified, efficient and flexible manner, underpinned by strong counterparty relationships within prudential limits and minimum requirements. The objective is to maintain natural market share, but also to outperform at the margin, which will provide the group with a natural liquidity buffer.

Given the liquidity risk introduced by its business activities, the group’s objective is to optimise its funding profile within structural and regulatory constraints to enable its franchises to operate in an efficient and sustainable manner.

Compliance with the Basel III LCR influences the bank’s funding strategy, in particular as it seeks to restore the correct risk-adjusted pricing of liquidity. The bank is actively building its deposit franchise through innovative and competitive products and pricing, while also improving the risk profile of its institutional funding. This continues to improve the funding and liquidity profile of the bank.

Given market conditions and the regulatory environment, the bank increased its holdings of available liquidity in line with risk appetite

for the year. The bank utilised new market structures, platforms and the SARB committed liquidity facility to efficiently increase the available liquidity holdings.

At 30 June 2016, the bank exceeded the 70% (2015: 60%) minimum LCR requirement with a LCR measurement of 102% (2015: 84%).

The BCBS liquidity coverage ratio disclosure standards propose consistent and transparent disclosure of banks’ liquidity positions as measured by the Basel III regulations. Directives 6/2014 and 11/2014 require the group to provide its LCR disclosure in a standardised template. The standard disclosure template will be included in the Basel Pillar III disclosure going forward.

Refer to www.firstrand.co.za/investorcentre/pages/commondisclosures.aspx for further detail.

At 30 June 2016, the bank’s available HQLA sources of liquidity per the LCR was R141 billion, with an additional R11 billion of manage-ment liquidity available.

FUNDING AND LIQUIDITY



p56

Funding and liquidity continued

During the year, liquidity demanded by banks as a consequence of the money supply constraints introduced by the LCR and the central bank’s open market operations without a commensurate increase in savings flows resulted in continued increased liquidity costs. In light of the structural features discussed above, focus remains on achieving a better risk-adjusted diversified funding profile which also supports the Basel III requirements.

The bank’s aim is to fund the balance sheet in the most efficient manner, taking into account the liquidity risk management framework, as well as regulatory and rating agency requirements.

To ensure maximum efficiency and flexibility in accessing funding opportunities, a range of debt programmes has been established. The bank’s strategy for domestic vanilla public issuance is to create actively-traded benchmarks, which facilitate secondary market liquidity in both domestic and offshore markets. The value of this strategy is that it assists in identifying cost-effective funding opportunities whilst ensuring a good understanding of market liquidity.

The following graph is a representation of the market cost of liquidity, which is measured as the spread paid on NCDs relative to the prevailing swap curve for that tenor. The liquidity spread graph is based on the most actively traded money market instrument by banks, namely 12-month NCDs.

100

90

80

70

60

50

40

30

20

10

007 08 09 10 11 12 13 14 1615

12-month floating rate note mid-market spread

90-day moving average (12-month floating rate note mid-market spread)

12-MONTH FLOATING RATE NOTE MID-MARKET SPREADbps

06

Source: Bloomberg (RMBP screen) and Reuters.

The following graph shows that long-term funding spreads remain elevated from a historical perspective and still appear to be reflecting a high liquidity premium. Liquidity spreads for instruments with maturities of less than 12 months in particular are extremely high, at levels last seen during the 2008 financial crises.

120 m

225

205

185

165

145

125

105

85

65

45

25Dec14

Dec15

Jun12

Dec12

Dec13

Jun15

Jun16

Jun13

Jun14

60 m

36 m

24 m

12 m

LONG-TERM FUNDING SPREADSbps

Source: Bloomberg (RMBP screen) and Reuters.

Funding measurement and activityFirstRand Bank, FirstRand’s wholly-owned subsidiary and debt issuer, generates a larger proportion of its funding from deposits compared to the South African aggregate, however, its funding profile also reflects the structural features described earlier.

The bank manages its funding structure by source, counterparty type, product, currency and market. The deposit franchise represents the most efficient source of funding and represented 63% of total FirstRand Bank SA funding liabilities at 30 June 2016 (2015: 64%). The bank continued to focus on growing its deposit franchise across all segments with increasing emphasis on savings and investment products. Progress continues to be made in developing suitable products to attract a greater proportion of clients’ available liquidity with improved risk-adjusted pricing by source and behaviour. To fund operations, the bank accesses the domestic money markets daily and capital markets from time to time. The bank has frequently issued various capital and funding instruments in the capital markets on an auction and reverse-enquiry basis. Given elevated domestic funding spreads, the bank has not actively sought to issue senior securities in benchmark size.

p57

The following graph provides a segmental analysis of the bank’s funding base and illustrates the success of its deposit franchise focus.

Deposit franchise+9%

Institutional funding and other +1%

+14% +9%

+5%158

180167

153134

140

339335

Institutionalfunding**

Retail Commercial CIB*

2015 2016

BANK FUNDING BY SEGMENTR billion

* Includes an adjustment for operational deposits from institutional clients in line with treatment for LCR purposes.

** Excludes operational deposits from financial institutions, but includes London branch and Turbo securitisations.

As a result of the bank’s focus on growing its deposit and transactional banking franchise, a significant proportion of funds are contractually short-dated. As these deposits are anchored to clients’ service requirements and given the balance granularity created by individual clients’ independent activity, the resultant liquidity risk profile is improved.

The following table provides an analysis of the bank’s funding sources.

FUNDING SOURCES OF FIRSTRAND BANK (EXCLUDING FOREIGN BRANCHES)

% of funding liabilities

As at 30 June 2016As at

30 June 2015*

Total Short term Medium term Long term Total

Institutional funding 37.0 13.6 3.6 19.8 35.9

Deposit franchise 63.0 47.3 8.3 7.4 64.1

Corporate 20.1 17.4 2.1 0.6 22.4

Retail 19.2 14.5 3.2 1.5 17.6

SMEs 5.5 4.6 0.6 0.3 5.4

Governments and parastatals 10.2 7.6 1.7 0.9 10.3

Foreign 6.9 3.1 0.7 3.1 6.8

Other 1.1 0.1 – 1.0 1.6

Total 100.0 60.9 11.9 27.2 100

Source: BA900 for FirstRand Bank South Africa.

* Restated to account for adjustments made to BA900 reporting in the current year.



p58


The following graph provides an analysis of the bank’s funding analysis by source.

Other Foreign SMEs Public sector Retail Corporate Institutional

Jun16

Dec*15

Dec14

Jun*15

Dec13

Jun14

Dec12

Jun13

Jun12

656

11

6

9

5

9

3

5

76

10

5222 1

8

10

17 17 171919

22 22 2220

22

37 39 39 3734

R558 bn R826 bnR599 bn R640 bn

65

10

2

17

23

37

R657 bn

65

10

2

17

23

37

R705 bn

65

11

3

18

24

33

R728 bn

75

10

2 3

18

22

36

R760 bn R795 bn2

FUNDING ANALYSIS BY SOURCE OF THE BANK EXCLUDING FOREIGN BRANCHES%

Source: SARB BA900 returns.* Restated to account for adjustments made to BA900 reporting in current year.

The following chart illustrates the bank’s funding instruments by instrument type, including senior debt and securitisation.

Current and savings accounts

Call deposits

Fixed and notice deposits

Negotiable certificates of deposit (NCDs)

Deposits under repurchase agreements

Securities lending

Credit-linked notes and cash collateral

Fixed- and floating-rate notes

Securitisation issuance

Other

Non-recourse deposits

Tier 2 issuance

FIRSTRAND BANK’S FUNDING ANALYSIS BY INSTRUMENT TYPE2016 2015

20%

8%

12%

25%

28%

3%1%

3%

23%

8%

10% 23%

24%

2%1%2%

2%2% 2%1%

p59

The following chart illustrates a breakdown of the bank’s funding liabilities by instrument and term.

Short-term<30 days

4%

4%

21%

9%

21%

9%

2%

Medium-term31 – 180 days

13%

10%

1%

Long-term>181 days

1%

Subordinated debt

Deposits received under repurchase agreements

Other deposits and loans accounts

Negotiable certificates of deposit

Fixed and notice deposits

Call deposits

Savings deposits

Current accounts

Short-term<30 days

15

Medium-term31 – 180 days

Long-term>181 days

FIRSTRAND BANK’S FUNDING LIABILITIES BY INSTRUMENT TYPE AND TERM2016 2015

1%

3%

3%

5%

19%

10%

21%

9%

5%

14%

8%

2%1%

1%

2%

The maturity profile of all issued capital markets instruments is shown in the following chart. The bank does not have concentration risk in any one year and seeks to efficiently issue across the curve considering investor demand.

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2030 2031 2033 2038 2042

16

14

12

10

8

6

4

2

0

EMTN issuance Credit-linked notes Subordinated debt Inflation-linked senior debt Senior debt

2045 2046

MATURITY PROFILE OF CAPITAL MARKET INSTRUMENTS OF THE BANK EXCLUDING FOREIGN BRANCHESR billion



p60

FirstRand’s foreign currency activities, specifically lending and trade finance, have steadily increased over the past five years. It is, therefore, important to have a sound framework for the assessment and management of foreign currency external debt, given the inherent vulnerabilities and liquidity risks associated with cross-border financing. This limit includes the bank’s exposure to branches, foreign currency assets and guarantees.

Philosophy on foreign currency external debtA key determinant in an institution’s ability to fund and refinance in currencies other than its domestic currency is the sovereign risk and associated external financing requirement. The group’s framework for the management of external debt takes into account sources of sovereign risk and foreign currency funding capacity and the macroeconomic vulnerabilities of South Africa. To determine South Africa’s foreign currency funding capacity, the group considers the external debt of all South African entities (private and public sector, financial institutions) as all these entities utilise the South African system’s capacity, namely, confidence and export receipts. The group employs a self-imposed structural borrowing limit and a liquidity risk limit more onerous then required in terms of regulations.


Funds transfer pricingThe group operates a funds transfer pricing framework which incorporates liquidity costs and benefits as well as regulatory friction costs into product pricing and performance measurement for all on- and off-balance sheet activities. Franchises are incentivised to:

preserve and enhance funding stability;

ensure that asset pricing is aligned to liquidity risk;

reward liabilities in accordance with behavioural characteristics and maturity; and

manage contingencies with respect to potential funding drawdowns.

FOREIGN CURRENCY BALANCE SHEET

Given that the group continues to grow its businesses in the rest of Africa and India, and the size of MotoNovo in the UK, the active management of foreign currency liquidity risk continues to be a strategic focus. The group seeks to avoid exposing itself to undue liquidity risk and to maintain liquidity risk within the risk appetite approved by the board and risk committee. The SARB via Exchange Control Circular 6/2010 introduced macro-prudential limits applicable to authorised dealers. The group utilises its own foreign currency balance sheet measures based on economic risk and has set internal limits below those allowed by the macro-prudential limits framework.

GRAPHICAL REPRESENTATION OF THE FOREIGN CURRENCY BALANCE SHEET

Short-term trading assets

Liquid trading assets

Interbank placing

FX liquidity buffers

FX liquidity buffersSyndicated loans Cross-currency basis swaps

(maturity matched)

Corporate depositsDevelopment finance institutions funding

Bank depositsEMTN issuance and structured funding

(structured products and currency linked)

FX working capital facilities

Trading assets

Short-term loans

Liquid trading assets

Term loans

Long-term loans

0 – 3m 3 – 12m 12 – 36m 36m+

Asse

ts

Tenor

Liab

ilitie

s

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REGULATORY UPDATE

The BCBS framework for sound liquidity risk management seeks to address two aspects:

LCR – addresses short-term liquidity risk; and

NSFR – addresses the structural liquidity risk of the balance sheet within the SA market.

The LCR has been fully adopted by the SARB with the inclusion of a committed liquidity facility (CLF). Phasing in of the LCR commenced in 2015 and banks are required to be fully compliant by 2019. The minimum LCR requirement is currently 70%, with 10% incremental step-ups each calendar year to 100% on 1 January 2019.

The SARB issued Guidance Note 6/2016 significantly increasing the cost for contracting a CLF. There is a continued focus on building a diversified pool of available HQLA. This is, however, limited given availability within the SA market.

The NSFR is considered a structural balance sheet ratio with the focus being to promote a more resilient banking sector. The ratio calculates the amount of available stable funding relative to the amount of required stable funding.

The provisional directive on the NSFR in November 2015 has subsequently been issued as Directive 4/2016 in August 2016. Banks will be required to submit a monthly monitoring template to enable the SARB to assess the readiness of banks to comply with the 100% NSFR requirements from 1 January 2018.

The SARB has applied its discretion on the treatment of deposits with maturities of up to six months received from financial institutions. The NSFR framework assigns a 0% ASF factor to these funds whereas the SARB elected to apply a 35% factor.

It is anticipated that this change will significantly assist the South African banking sector in meeting NSFR requirements. On a pro forma basis FirstRand expects that it would exceed the minimum requirements.

The BCBS published the liquidity coverage ratio disclosure standards in March 2014, with the objective to reduce market uncertainty around liquidity positions. Key points are:

effective from 1 January 2015;

will follow the capital quarterly disclosures; and

standardised template currently completed semi-annually.

These disclosures reveal industry reporting inconsistencies which are now being addressed via the Banking Association of South Africa, together with SARB and SAICA.

In September 2015, the SARB and FSB published for public comment a discussion document, Strengthening South Africa’s Resolution Framework for Financial Institutions. The paper sets out the motivation, principles and policy proposals for such a strengthened framework and is intended to solicit public comment and serve as a basis for further industry discussions in preparation for the drafting of a special resolution bill.

The paper introduces the concept of total loss-absorbing capacity (TLAC) to explicitly subordinate specified instruments in order to make these loss absorbing at resolution phase. TLAC, in the context of the paper, does not necessarily have the same characteristics as the proposed TLAC requirements applicable to global systemically important banks (G-SIB) and have been identified as:

ordinary shares;

preference shares; and

pre-identified loss-bearing instruments.

BA

SEL

III

DIS

CLO

SUR

E

REQ

UIR

EMEN

TS

LIQ

UID

ITY

CO

VER

AGE

R

ATIO

NET

STA

BLE

FU

ND

ING

RAT

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ESO

LUTI

ON

FR

AMEW

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Liquidity buffers are actively managed via high quality, highly liquid assets that are available as protection against unexpected events or market disruptions. The quantum and composition of the available sources of liquidity are defined by the behavioural funding liquidity at risk and the market liquidity depth of available liquidity resources. In addition, adaptive overlays to liquidity requirements are derived from stress testing and scenario analysis of the cash inflows and outflows related to business franchise activity.

Funding from institutional clients is a significant contributor to the group’s net cash outflows as measured under the LCR at nearly 30% of the South African market structure. Other significant contributors to the cash outflows are corporate funding and off-balance sheet facilities granted to clients, specifically those related to corporate clients. The group has strategies in place to increase funding sourced through its deposit franchise and to reduce reliance on the more inefficient institutional funding sources, as well as to offer facilities more efficiently.

The bank’s LCR increased due to an increase in HQLA holdings of R21 billion and a reduction in net cash outflows of R5 billion. This is as a result of targeted strategies to raise more stable funding sources and to increase liquid asset holdings. In addition, certain components of the LCR have now been clarified by the SARB and industry working groups, which has allowed the bank to align its methodology with other sector players, resulting in a structural uplift in its LCR.


LIQUIDITY RISK POSITION

The following table provides details on the available sources of liquidity by Basel LCR definition and managements’ assessment of the required buffer.

BANK LIQUID ASSETS COMPOSITION

Marketable assets HQLA Basel III view after haircut

Management view after haircuts

R billionTotal 2016 Level 1 Level 2

Total 2016

Total 2015*

Total 2016

Total 2015*

Cash and deposits with central banks 26 26 – 26 26 26 26

Government bonds and bills 74 74 – 74 82 74 82

Other liquid assets 62 – 41 41 12 52 24

Total 162 100 41 141 120 152 132

* June 2015 restated to align to full HQLA for LCR purposes.

Directive 6/2014 and 11/2014 require the group to provide its LCR disclosure in a standardised template. Refer to www.firstrand.co.za/investorcentre/pages/commondisclosures.aspx

The graph below gives an indication of the bank’s LCR position of 102% (2015: 84%) and demonstrates the bank’s compliance with the 70% minimum requirement.

Other outflows and

off-balancesheet facilities

Corporate

Financialinstitutions

Retail and SME

Total HQLA

(inclusive of CLF)

Available liquidity Net cash outflows

100

80

60

40

20

0

70% minimumcompliance level

LCR 102%

Public sector

FIRSTRAND BANK LCR%

Scan with your smart device’s QR code reader to access the common disclosure templates on the group’s website. Ratios reflect a quarterly average.

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CAPITAL

The bank actively manages its capital base commensurate with its strategy and risk appetite. The optimal level and composition of capital is determined after taking into account:

business units’ organic growth plans;

rating agencies’ considerations;

investor expectations (including debt holders);

targeted leverage levels;

future business plans;

stress testing scenarios;

economic and regulatory capital requirements;

issuance of additional capital instruments;

regulatory and accounting changes; and

the board’s risk appetite.

YEAR UNDER REVIEW

The capital planning process ensures that the total capital adequacy and CET1 ratios remain within or above targets across economic and business cycles. Capital is managed on a forward-looking basis and the bank remains appropriately capitalised under a range of normal and severe stress scenarios, which includes ongoing regulatory developments, expansion initiatives and corporate transactions. The bank aims to back all economic risk with loss absorbing capital and remains well capitalised in the current environment.

The Basel III leverage ratio is a supplementary measure to the risk-based capital ratio and greater emphasis has been placed on monitoring this ratio.

The bank comfortably operated above its capital and leverage targets during the year. The table below summarises the bank’s capital and leverage ratios as at 30 June 2016.

CAPITAL ADEQUACY AND LEVERAGE POSITION

Capital Leverage

% CET1 Tier 1 Total Total

Regulatory minimum* 6.9 8.1 10.4 4.0

Internal target 10.0 – 11.0 >12.0 >14.0 >5.0

Actual

FRB including foreign branches

Including unappropriated profits 13.9 14.2 17.1 7.2

Excluding unappropriated profits 12.2 12.5 15.4 6.4

FRB excluding foreign branches

Including unappropriated profits 14.0 14.4 16.9 7.0

Excluding unappropriated profits 12.3 12.7 15.3 6.2

* Excluding the bank-specific individual capital requirement and add-on for domestic systemically important banks.



p64

The graphs below show the historical overview of capital adequacy, RWA and leverage for the bank (including foreign branches).

13 14 15**

12.6

12*

Tier 2 capital (R billion)

AT1 capital (R billion)

CET1 capital (R billion)

CET1 ratio (%)

16**

16.2

6.7

14.2 13.913.6

12.1

51.5

7.0

45.0

60.4

77.9

11.6

71.3

10.3

CAPITAL ADEQUACY

3.02.7

2.4

1.82.1

RWA (R billion)

RWA as a % of total assets

13 14 15

52.3

12 16

562

410

52.9 54.452.3

53.9

372

502

446

RWA HISTORY

* 2012 is on a Basel II basis, 2013 onwards is on a Basel III basis.

** Includes unappropriated profits.

14

12

10

8

6

4

2

0Jun14

Jun15*

Dec15*

5.0

7.27.17.26.96.5

Jun16*

Dec14*

LEVERAGE%

Actual (%)

Target (%)

* Includes unappropriated profits.

Capital continued

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REGULATORY UPDATE

Effective 1 January 2016, the SARB minimum capital requirement was adjusted for the capital conservation buffer, add-on for domestic systemically important banks (D-SIB) and the countercyclical buffer. Currently the SARB has not implemented any countercyclical buffer requirement for South African exposures. The capital conservation buffer and D-SIB add-on will be phased in over the next four years, as illustrated below.

Capital conservation**

D-SIB**

Pillar 2A**

Tier 2 minimum

AT1 minimum

CET1 minimum

2019(end-state)

20162015

2.50

0.630.63

2.00

2.00

1.50

4.50

1.75

2.00

1.50

4.50

1.00

2.00

1.50

4.50

11.00

10.00 2.50

14.00

Transitionalrequirements

TRANSITIONAL MINIMUM REQUIREMENTS*%

* Assuming a maximum add-on for D-SIB.

** Pillar 2A and D-SIB met with CET1, Tier 1 and total capital. Capital conservation buffer met solely with CET1 capital.

The bank’s internal targets have been aligned to the end-state minimum requirements and are subject to ongoing review and consideration of various stakeholder requirements. No changes have been made to the current targets during the year.

The BCBS issued various consultative documents, including revisions to the RWA framework, capital floors and leverage framework. These papers are at different stages of testing, finalisation and implementation, and the actual impact on banks remains unclear. The group continues to participate in the BCBS quantitative impact studies to assess and incorporate, where relevant, the effect of these standards.



p66

Capital continued

COMPOSITION OF CAPITAL

Supply of capitalThe tables below summarise the bank’s (including foreign branches) qualifying capital components and related year-on-year movements.

COMPOSITION OF CAPITAL ANALYSIS

Year ended 30 June

R million 2016 2015

Including unappropriated profits

CET1 77 906 71 289

Tier 1 79 706 73 389

Total qualifying capital 95 933 85 007

Excluding unappropriated profits

CET1 68 536 65 876

Tier 1 70 336 67 976

Total qualifying capital 86 563 79 594

Movement

CET1 AT1 Tier 2

Internal capital generation through earnings.

Additional 10% haircut on NCNR preference shares that are not compliant with Basel III.

Issuance of Basel III compliant subordinated debt instruments totalling R4.9 billion:

– FRB16 and FRB17 in July 2015: R2.3 billion; and

– FRB18, FRB19 and FRB20 in April 2016: R2.6 billion.

Redemption of FRB08 (R100 million) in June 2016.

Additional haircut on instruments that are not compliant with Basel III.

p67

DEMAND FOR CAPITAL

The table below shows the breakdown of the bank’s (including foreign branches) RWA per risk type as per current regulations.

RWA ANALYSIS

Year ended 30 June

R million 2016 2015 K EY D R IVERS

Credit risk 406 950 370 561 organic growth, model recalibrations and regulatory refinement.

Counterparty credit risk 20 155 15 591 volumes and mark-to-market movements.

Operational risk 85 710 77 302

higher risk scenario values for certain portfolios subject to the advanced measurement approach (AMA); and

increase in gross income for entities on basic approaches.

Market risk 16 639 11 523 volumes and mark-to-market movements

Equity investment risk* 8 979 6 179 investment in African Bank Holdings Limited.

Other assets* 23 142 21 222

increase in deferred tax assets relating to temporary differences; and

increase in property and equipment.

Total RWA 561 575 502 378

* Equity investment risk comparatives have been restated to include investment in financial, banking and insurance entities risk weighted at 250%.



p68

Capital continued

CAPITAL ADEQUACY POSITION FOR THE BANK AND ITS FOREIGN BRANCHES

The bank’s registered foreign branches must comply with SARB regulations and those of the respective in-country regulators, with primary focus placed on Tier 1 capital and total capital adequacy ratios. Based on the outcome of detailed stress testing, each entity targets a capital level in excess of the regulatory minimum. Adequate controls and processes are in place to ensure that each entity is adequately capitalised to meet local and SARB regulatory requirements. Capital generated by branches in excess of targeted levels is returned to FRB, usually in the form of a return of profits. During the year, no restrictions were experienced on the return of profits to the bank.

The RWA and capital adequacy positions of the bank and its foreign branches are set out below.

RWA AND CAPITAL ADEQUACY POSITIONS OF THE BANK AND ITS FOREIGN BRANCHES

Year ended 30 June

2016 2015

RWAR million

Tier 1%

Total capitaladequacy

%

Total capitaladequacy

%

Basel III

FirstRand Bank*,** 561 575 14.2 17.1 16.9

FirstRand Bank South Africa** 522 211 14.4 16.9 16.7

FirstRand Bank London 36 776 10.3 17.4 16.1

FirstRand Bank India 2 971 23.9 24.3 39.5

FirstRand Bank Guernsey# 58 43.9 43.9 –

* FRB including foreign branches.

** Includes unappropriated profits.# Trading as FNB Channel Islands.

Directive 3/2015 (capital) and directive 4/2014 (leverage) requires the following additional common disclosure in line with Regulation 43 of the Regulations relating to Banks:

composition of capital;

reconciliation of IFRS financial statements to regulatory capital and reserves;

main features of capital instruments; and

leverage common disclosure templates.

Refer to www.firstrand.co.za/investorcentre/pages/commondisclosures.aspx.

Scan with your smart device’s QR code reader to access the common disclosure templates on the group’s website.

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FIRSTRAND BANK LIMITED

The credit ratings reflect FirstRand Bank’s strong market position as one of the big four banks in South Africa as well as its focused strategy, good core profitability, financial flexibility, robust risk management and sound capitalisation.

CREDIT RATINGS AS AT 8 SEPTEMBER 2016

South African sovereign rating FirstRand Bank

Moody's S&P Moody's S&P

Outlook Negative Negative Negative Negative

Foreign currency rating

Long term Baa2 BBB- Baa2 BBB-

Short term (P)P-2 A-3 P-2 A-3

Local currency rating

Long term Baa2 BBB+ Baa2 BBB-

Short term (P)P-2 A-2 P-2 A-3

National scale rating

Long term zaAAA Aaa.za zaAA-

Short term zaA-1 P-1.za zaA-1

Standalone credit ratings* baa2 bbb

* Refers to a rating agency’s measure of a bank’s intrinsic creditworthiness before considering external factors, e.g. affiliate or government support. The two major rating agencies use different terminology for this concept: Moody’s baseline credit assessment and S&P’s standalone credit profile.

South Africa sovereign rating

During the current financial year, Moody’s Investor Services (Moody’s) and S&P Global Ratings (S&P) changed the outlook on the South African sovereign to negative from stable. These rating actions were primarily driven by South Africa’s weakening credit profile, and challenging economic and operating environment. Both rating agencies affirmed the sovereign rating in the last quarter of the 2016 financial year. The impact of these rating actions on FirstRand Bank are outlined below.

Moody’s

On 17 December 2015, Moody’s changed the outlook on FirstRand Bank’s ratings to negative from stable. In May 2016 the long- and short-term foreign and local currency deposit ratings were confirmed, and the national scale ratings were repositioned to Aaa.za from A1.za following the recalibration of the South African national scale rating.

S&P

On 9 December 2015, S&P revised its outlook for FirstRand Bank to negative from stable. At the same time, FirstRand Bank’s long-term national scale ratings were lowered to zaAA- from zaAA and the short-term national scale rating was affirmed at zaA-1. The ratings were affirmed in April 2016.

CREDIT RATINGS



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p71

IFRSinformationpg 72 – 98


IFRS INFORMATION

p72

PRESENTATION

BASIS OF PRESENTATION

The summarised financial statements contained in this Analysis of financial results booklet are derived from a complete set of the bank’s audited financial statements.

FRB prepares its summarised financial results in accordance with:

the framework concepts and the recognition and measurement requirements of International Financial Reporting Standards (IFRS), including interpretations issued by the IFRS Interpretations Committee;

Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council;

SAICA Financial Reporting Guide as issued by the Accounting Practices Committee;

as a minimum, the information required by IAS 34 Interim Financial Reporting; and

requirements of the Companies Act, no 71 of 2008, applicable to summary financial statements.

The directors take full responsibility and confirm that this information has been correctly extracted from the financial statements from which the summarised financial statements were derived.

ACCOUNTING POLICIES

The accounting policies applied in the preparation of the financial statements from which the summarised financial statements were derived, are in terms of IFRS.

The financial statements, from which these summarised financial statements are extracted are prepared in accordance with the going concern principle under the historical cost basis as modified by the fair value accounting of certain assets and liabilities where required or permitted by IFRS.

The bank has elected to early adopt the amendment to IAS 1 Presentation of Financial Statements, which clarified that materiality applies to the complete set of financial statements, including disclosures. In terms of the amendment, the inclusion of immaterial information in the financial statements can negatively affect the usefulness of disclosures. In order to early adopt the amendment the bank reviewed the financial statements to identify areas where disclosures were ineffective, related to immaterial items or considered unnecessary.

As a result of the review, provisions have now been included with creditors and accruals on the face of the statement of financial position.

The revised standard did not have any effect on the bank’s reported earnings, financial position, or reserves and had no material impact on the accounting policies.

Other than the change in presentation described above the accounting policies are consistent with those applied for the year ended 30 June 2015. No other new or amended IFRS standards became effective for the year ended 30 June 2016.

NORMALISED RESULTS

The bank believes normalised earnings more accurately reflect its economic performance. Consequently, headline earnings have been adjusted to take into account non-operational and accounting anomalies.

This pro forma financial information, which is the responsibility of the bank’s directors, has been prepared for illustrative purposes to more accurately reflect operational performance and because of its nature may not fairly present in terms of IFRS, the bank’s financial position, changes in equity and results of operations or cash flows. Details of the nature of these adjustments and reasons therefore can be found on pages below and page 73. The pro forma information should be read in conjunction with the unmodified Deloitte & Touche and PricewaterhouseCoopers Inc. independent reporting accountant’s report, which is available for inspection at the registered office.

AUDITORS’ REPORT

The summarised financial statements for the year ended 30 June 2016 contained in this booklet have been audited by PricewaterhouseCoopers Inc. and Deloitte & Touche, who expressed an unmodified opinion thereon. Refer to page 74.

The auditors also expressed an unmodified opinion on the financial statements from which the summarised financial statements were derived. Unless the financial information is specifically stated as audited, it should be assumed it is unaudited.

A copy of the auditors’ report on the audited financial statements are available for inspection at FirstRand Bank’s registered office, 4 Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, together with the audited financial statements identified in the respective auditors’ report.

The auditors’ report does not necessarily report on all of the information contained in these summarised financial statements. Shareholders are therefore, advised that in order to obtain a full understanding of the nature of the auditors’ engagement they should review the auditors’ report together with the accompanying financial information from the issuer’s registered office.

The forward-looking information has not been commented or reported on by the bank’s external auditors. FirstRand Bank’s board of directors take full responsibility for the preparation of this booklet.

DESCRIPTION OF DIFFERENCE BETWEEN NORMALISED AND IFRS RESULTS

The bank believes normalised earnings more accurately reflect its economic performance. Headline earnings are adjusted to take into account non-operational items and accounting anomalies.

ECONOMIC INTEREST RATE HEDGES

From time to time the bank enters into economic interest rate hedging transactions, which do not qualify for hedge accounting in terms of the requirements of IFRS. When presenting normalised results, the bank reclassifies fair value changes on these hedging instruments from NIR to NII to reflect the economic substance of these hedges.

p73

MARGIN ON SECURITISED ASSETS

From time to time the bank enters into transactions whereby advances are sold to a securitisation vehicle controlled by the FirstRand group. The bank’s compensation for the sale comprises a cash component received immediately and a right to receive any future excess spread from the securitisation vehicle, referred to as a deferred purchase price (DPP).

The initial recognition of the DPP results in a profit for the bank on the date of the sale of the advances. The purpose of the DPP is to compensate the bank for the last margin on the disposal of advances.

The net profit resulting from the derecognition of the advances and the initial recognition of DPP is recognised in NIR in terms of IFRS. When calculating normalised results, the DPP profit is reclassified to NII in accordance with its economic substance.

The DPP is immediately sold to a third party and any further gains or losses on the DPP, other than the profit recognised at initial recognition, are not recognised.

FAIR VALUE ANNUITY INCOME – LENDING

The bank accounts for the majority of its wholesale advances book in RMB on a fair value basis in terms of IFRS. As a result, the margin on these advances is reflected as part of NIR.

When calculating normalised results, the bank reclassifies the margin relating to the annuity fair value income earned on the RMB wholesale advances book from NIR to NII to reflect the economic substance of the income earned on these assets. The corresponding impairment charge is reallocated from NIR to impairment of advances. Fair value advances are adjusted to reflect the cumulative adjustment.

CREDIT-BASED INVESTMENTS INCLUDED IN ADVANCES

Certain corporate bond debt securities qualifying as high quality liquid assets and notes held in securitisation vehicles are classified as investment securities for IFRS purposes. The underlying nature and risk exposure of these assets is credit related and these assets are, therefore, reclassified from investment securities to advances.

USD LIQUIDITY FUNDING

The bank raised additional USD funding and liquidity during the current and previous two financial periods. Following IFRS, certain currency translations and costs associated with these funding actions are reflected against NIR. From an economic perspective, these impacts form part of the inherent cost of the USD funding pool and, as such, have been reflected against NII on a normalised basis.

IAS 19 REMEASUREMENT OF PLAN ASSETS

In terms of IAS 19 Employee Benefits, interest income is recognised on the plan assets and set off against staff costs in the income statement. All other remeasurements of plan assets are recognised in other comprehensive income. In instances where the plan asset is a qualifying insurance policy, which has a limit of indemnity, the fair value of the plan asset is limited to that limit of indemnity. The limit of indemnity continually reduces as payments are made in terms of the insurance policy. After the recognition of interest income on the plan asset, any further adjustment required to revalue the plan asset to the limit of indemnity is recognised in other comprehensive income. Therefore, to the extent that interest income on plan assets results in an increase in the fair value of the plan asset above the limit of indemnity, a downward fair value measurement is recognised in other comprehensive income. Economically, the value of the plan asset has simply reduced with claims paid. Normalised results are adjusted to reflect this by increasing staff costs for the value of the interest on the plan assets and increasing other comprehensive income.

CASH SETTLED SHARE-BASED PAYMENTS AND THE ECONOMIC HEDGE

The bank entered into a TRS with external parties to economically hedge itself against the exposure to changes in the FirstRand share price associated with the bank’s long-term incentive schemes. In terms of IAS 39 Financial Instruments: Recognition and Measurement, the TRS is accounted for as a derivative instrument at fair value with the full fair value change recognised in NIR.

In accordance with IFRS 2 Share-based Payments, the expense resulting from these option schemes is recognised over the vesting period of the schemes. This leads to a mismatch in the recognition of the profit or loss of the hedge and the share-based payment expense.

When calculating normalised results, the bank defers the recognition of the fair value gain or loss on the hedging instrument for the specific reporting period to the period in which the IFRS 2 impact will manifest in the bank’s results. This reflects the economic substance of the hedge and associated IFRS 2 impact for the bank.

In addition, the portion of the share-based payment expense which relates the remeasurement of the liability arising from changes in the share price is reclassified from operating expenses into NIR in accordance with the economics of the transaction. The share-based payment expense included in operating expenses is equal to the grant date fair value of the awards given.

HEADLINE EARNINGS ADJUSTMENTS

All adjustments that are required by Circular 2/2015 Headline Earnings in calculating headline earnings are included in normalised earnings on a line-by-line basis based on the nature of the adjustment.

The description and the amount of these adjustments are provided in the reconciliation between headline earnings and IFRS profit on page 80.


IFRS INFORMATION

p74

INDEPENDENT AUDITORS’ REPORT ON SUMMARISED FINANCIAL STATEMENTS

TO THE SHAREHOLDER OF FIRSTRAND BANK LIMITED

The summarised financial statements of FirstRand Bank Limited, indicated as such and contained in the accompanying summarised report, which comprise the summarised statement of financial position as at 30 June 2016, the summarised income statement, the summarised statements of comprehensive income, changes in equity and cash flows for the year then ended, and related notes, are derived from the audited financial statements of FirstRand Bank Limited for the year ended 30 June 2016. We expressed an unmodified audit opinion on those financial statements in our report dated 7 September 2016. Our auditors’ report on the audited financial statements contained an other matter paragraph, “other reports required by the Companies Act” (refer below).

The summarised financial statements do not contain all the disclosures required by the International Financial Reporting Standards and the requirements of the Companies Act of South Africa as applicable to annual financial statements. Reading the summarised financial statements, therefore, is not a substitute for reading the audited financial statements of FirstRand Bank Limited.

Directors’ responsibility for the summarised financial statementsThe directors are responsible for the preparation of the summary of the financial statements, as set out in the basis of presentation to the summarised financial statements, and the requirements of the Companies Act of South Africa as applicable to summarised financial statements, and for such internal control as the directors determine is necessary to enable the preparation of the summarised financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibilityOur responsibility is to express an opinion on the summarised financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, Engagements to Report on Summary Financial Statements.

OpinionIn our opinion, the summarised financial statements derived from the audited financial statements of FirstRand Bank Limited for the year ended 30 June 2016 are consistent, in all material respects, with those financial statements, as set out in the basis of presentation to the summarised financial statements, and the requirements of the Companies Act of South Africa as applicable to summarised financial statements.

Other reports required by the Companies ActThe “other reports required by the Companies Act” paragraph in our audit report dated 7 September 2016 states that as part of our audit of the financial statements for the year ended 30 June 2016, we have read the directors’ report, the audit committee report and the bank secretary’s certification for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. The paragraph also states that, based on reading these reports, we have not identified material inconsistencies between these reports and the audited annual financial statements. The paragraph furthermore states that we have not audited these reports and accordingly do not express an opinion on these reports. The paragraph does not have an effect on the summarised financial statements or our opinion thereon.

Deloitte & ToucheRegistered AuditorsPer Partner: Darren ShippJohannesburg

7 September 2016

PricewaterhouseCoopers Inc.Registered AuditorsDirector: Francois Prinsloo Johannesburg

7 September 2016

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Net interest income before impairment of advances 35 543 30 229 18

Impairment of advances (5 998) (4 356) 38

Net interest income after impairment of advances 29 545 25 873 14

Non-interest revenue 28 863 29 216 (1)

Income from operations 58 408 55 089 6

Operating expenses (35 035) (33 498) 5

Income before tax 23 373 21 591 8

Indirect tax (763) (751) 2

Profit before tax 22 610 20 840 8

Income tax expense (5 460) (5 239) 4


Attributable to




SUMMARISED INCOME STATEMENT – IFRS (AUDITED)for the year ended 30 June



Items that may subsequently be reclassified to profit or loss

Cash flow hedges 118 (271) (>100)

Gains/(losses) arising during the year 144 (569) (>100)

Reclassification adjustments for amounts included in profit or loss 20 193 (90)

Deferred income tax (46) 105 (>100)

Available-for-sale financial assets (495) (35) >100

Losses arising during the year (679) (40) >100

Reclassification adjustments for amounts included in profit or loss 7 (20) (>100)

Deferred income tax 177 25 >100

Exchange differences on translating foreign operations 482 290 66

Gains arising during the year 482 290 66

Items that may not subsequently be reclassified to profit or loss

Remeasurements on defined benefit post-employment plans (133) 1 (>100)

(Losses)/gains arising during the year (185) 2 (>100)

Deferred income tax 52 (1) (>100)

Other comprehensive loss for the year (28) (15) 87


Attributable to




SUMMARISED STATEMENT OF COMPREHENSIVE INCOME – IFRS (AUDITED)for the year ended 30 June


IFRS INFORMATION

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R million 2016 2015

ASSETS

Cash and cash equivalents 50 997 53 725


Commodities 12 514 7 354

Investment securities 155 825 133 543

Advances 719 693 675 387

Accounts receivable 4 561 4 301

Non-current assets and disposal groups held for sale – 125

Current tax asset 166 –

Amounts due by holding company and fellow subsidiaries 32 793 27 318

Property and equipment 13 632 12 821

Intangible assets 106 71

Deferred income tax asset 1 369 1 202

Total assets 1 031 579 949 959


Liabilities

Short trading positions 14 221 5 270


Creditors, accruals and provisions* 12 644 12 465

Current tax liability 75 69

Deposits 826 473 779 703

Employee liabilities 8 772 8 848


Amounts due to holding company and fellow subsidiaries 13 997 11 836

Tier 2 liabilities 17 468 11 983

Total liabilities 949 660 874 962

Equity

Ordinary shares 4 4

Share premium 16 804 16 804

Reserves 62 111 55 189


NCNR preference shares 3 000 3 000

Total equity 81 919 74 997

Total equity and liabilities 1 031 579 949 959

* In the prior year, provisions were presented in a separate line on the statement of financial position. The prior year has been restated accordingly.

SUMMARISED STATEMENT OF FINANCIAL POSITION – IFRS (AUDITED) as at 30 June

R million 2016 2015

Cash flows from operating activities

Interest and fee and commission receipts 82 481 70 597

Trading and other income 4 297 3 978

Interest payments (26 515) (20 776)

Other operating expenses (28 614) (25 422)

Dividends received 3 034 2 128

Dividends paid (10 200) (6 654)

Cash generated from operating activities 24 483 23 851

Movement in operating assets and liabilities (31 303) (20 295)

Liquid assets and trading securities (21 731) (41 225)

Advances (44 027) (55 407)

Deposits 40 947 84 756

Creditors (net of debtors) 166 1 395

Employee liabilities (4 809) (4 528)


Taxation paid (6 213) (6 663)

Net cash (outflow)/inflow generated from operating activities (6 820) 3 556

Cash flows from investing activities

Acquisition of property and equipment (3 243) (3 600)

Proceeds on disposal of property and equipment 448 424

Acquisition of intangible assets (104) (36)

Proceeds on disposal of non-current assets held for sale 125 –

Net cash outflow from investing activities (2 774) (3 212)

Cash flows from financing activities

Proceeds from the issue/(repayment of) other liabilities 1 290 (460)

Proceeds from the issue of Tier 2 liabilities 5 485 499

Proceeds from issue of ordinary shares – 1 500

Net cash inflow from financing activities 6 775 1 539

Net (decrease)/increase in cash and cash equivalents (2 819) 1 883

Cash and cash equivalents at the beginning of the year 53 725 51 788

Effect of exchange rate changes on cash and cash equivalents 91 54

Cash and cash equivalents at the end of the year 50 997 53 725

Mandatory reserve balances included above* 19 267 18 223

* Banks are required to deposit a minimum average balance, calculated monthly, with the central bank, which is not available for use in the bank's day-to-day operations. The deposit bears no or low interest. Money at short notice constitutes amounts withdrawable in 32 days or less.

SUMMARISED STATEMENT OF CASH FLOWS – IFRS (AUDITED)for the year ended 30 June


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IFRS INFORMATION

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Ordinary share capital and ordinary equityholders' funds Ordinary share capital and ordinary equityholders' funds

NCNR preference

sharesTotal

equityR millionShare

capitalShare

premium

Share capital

and share premium

Defined benefit

post-employment

reserve

Cash flow hedge

reserve

Share-based

payment reserve

Available-for-sale reserve

Foreign currency

translation reserve

Other reserves

Retained earnings

Reserves attributable to ordinary

equityholders

Balance as at 1 July 2014 4 15 304 15 308 (766) 461 465 430 186 1 345 43 635 45 756 3 000 64 064

Net proceeds of the issue of share capital – 1 500 1 500 – – – – – – – – – 1 500

Movement in other reserves – – – – – 74 – – – – 74 – 74

Vesting of share-based payments – – – – – (539) – – – 539 – – –

Equity transactions with fellow subsidiaries – – – – – – – – – 427 427 – 427

Ordinary dividends – – – – – – – – – (6 447) (6 447) – (6 447)

Preference dividends – – – – – – – – – – – (207) (207)

Total comprehensive income for the year – – – 1 (271) – (35) 290 – 15 394 15 379 207 15 586

Balance as at 30 June 2015 4 16 804 16 808 (765) 190 – 395 476 1 345 53 548 55 189 3 000 74 997

Net proceeds of issue of share capital – – – – – – – – – – – – –

Movement in other reserves – – – – – – – – – – – – –

Vesting of share-based payments – – – – – – – – – – – – –

Equity transactions with fellow subsidiaries – – – – – – – – – – – – –



Total comprehensive income for the year – – – (133) 118 – (495) 482 – 16 931 16 903 219 17 122

Balance as at 30 June 2016 4 16 804 16 808 (898) 308 – (100) 958 1 345 60 498 62 111 3 000 81 919

SUMMARISED STATEMENT OF CHANGES IN EQUITY – IFRS (AUDITED) for the year ended 30 June

Ordinary share capital and ordinary equityholders' funds Ordinary share capital and ordinary equityholders' funds

NCNR preference

sharesTotal

equityR millionShare

capitalShare

premium

Share capital

and share premium

Defined benefit

post-employment

reserve

Cash flow hedge

reserve

Share-based

payment reserve

Available-for-sale reserve

Foreign currency

translation reserve

Other reserves

Retained earnings

Reserves attributable to ordinary

equityholders

Balance as at 1 July 2014 4 15 304 15 308 (766) 461 465 430 186 1 345 43 635 45 756 3 000 64 064

Net proceeds of the issue of share capital – 1 500 1 500 – – – – – – – – – 1 500

Movement in other reserves – – – – – 74 – – – – 74 – 74

Vesting of share-based payments – – – – – (539) – – – 539 – – –

Equity transactions with fellow subsidiaries – – – – – – – – – 427 427 – 427



Total comprehensive income for the year – – – 1 (271) – (35) 290 – 15 394 15 379 207 15 586

Balance as at 30 June 2015 4 16 804 16 808 (765) 190 – 395 476 1 345 53 548 55 189 3 000 74 997

Net proceeds of issue of share capital – – – – – – – – – – – – –

Movement in other reserves – – – – – – – – – – – – –

Vesting of share-based payments – – – – – – – – – – – – –

Equity transactions with fellow subsidiaries – – – – – – – – – – – – –



Total comprehensive income for the year – – – (133) 118 – (495) 482 – 16 931 16 903 219 17 122

Balance as at 30 June 2016 4 16 804 16 808 (898) 308 – (100) 958 1 345 60 498 62 111 3 000 81 919


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IFRS INFORMATION

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Profit for the year (refer page 75) 17 150 15 601 10

NCNR preference shareholders (219) (207) 6

Earnings attributable to ordinary equityholders 16 931 15 394 10

Adjusted for: 28 (7) (>100)

Loss/(gain) on disposal of available-for-sale assets 8 (20)

(Gain)/loss on disposal of property and equipment (1) 14

Impairment of assets in terms of IAS 36 23 –

Other – (3)

Tax effects of adjustments (2) 2


STATEMENT OF HEADLINE EARNINGS – IFRSfor the year ended 30 June

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Adjusted for: 392 (141) (>100)

TRS and IFRS 2 liability remeasurement* 494 (34) (>100)

IAS 19 adjustment (102) (107) (5)


* The bank uses a TRS with external parties to economically hedge itself against the exposure to changes in the FirstRand share price associated with the bank’s long-term incentive schemes.

The TRS is accounted for as a derivative in terms of IFRS, with the full fair value change recognised in NIR.

In the current year, FirstRand’s share price declined R8.48 and during the prior year increased R12.57. This resulted in a significant mark-to-market fair value loss in the current period (compared to profit in the prior year) being included in the bank’s IFRS attributable earnings. The normalised results reflect the adjustment to normalise this year-on-year IFRS fair value volatility from the TRS, as described in more detail on page 73.

RECONCILIATION FROM HEADLINE TO NORMALISED EARNINGSfor the year ended 30 June


IFRS INFORMATION

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R millionJune 2016

Normalised IAS 19

adjustment

Margin onsecuritised

assetsEconomic

hedges

Fair value annuity income(lending)

USDliquidityfunding

TRSadjustment

Headlineearnings IFRS

Net interest income before impairment of advances 38 333 – (1 234) 354 (2 442) 532 – – 35 543

Impairment of advances (6 255) – – – 257 – – – (5 998)

Net interest income after impairment of advances 32 078 – (1 234) 354 (2 185) 532 – – 29 545

Non-interest revenue 27 261 – 1 234 (354) 2 185 (532) (924) (7) 28 863

Income from operations 59 339 – – – – – (924) (7) 58 408

Operating expenses (35 392) 142 – – – – 238 (23) (35 035)

Income before tax 23 947 142 – – – – (686) (30) 23 373

Indirect tax (763) – – – – – – – (763)

Profit before tax 23 184 142 – – – – (686) (30) 22 610

Income tax expense (5 614) (40) – – – – 192 2 (5 460)

Profit for the year 17 570 102 – – – – (494) (28) 17 150

Attributable to

NCNR preference shareholders (219) – – – – – – – (219)

Ordinary equityholder 17 351 102 – – – – (494) (28) 16 931

Headline and normalised earnings adjustments – (102) – – – – 494 28 420

Normalised earnings 17 351 – – – – – – – 17 351

RECONCILIATION OF NORMALISED TO IFRS SUMMARISED INCOME STATEMENTfor the year ended 30 June 2016

R millionJune 2016

Normalised IAS 19

adjustment


assetsEconomic

hedges


USDliquidityfunding

TRSadjustment


Net interest income before impairment of advances 38 333 – (1 234) 354 (2 442) 532 – – 35 543


Net interest income after impairment of advances 32 078 – (1 234) 354 (2 185) 532 – – 29 545

Non-interest revenue 27 261 – 1 234 (354) 2 185 (532) (924) (7) 28 863

Income from operations 59 339 – – – – – (924) (7) 58 408

Operating expenses (35 392) 142 – – – – 238 (23) (35 035)

Income before tax 23 947 142 – – – – (686) (30) 23 373

Indirect tax (763) – – – – – – – (763)

Profit before tax 23 184 142 – – – – (686) (30) 22 610

Income tax expense (5 614) (40) – – – – 192 2 (5 460)

Profit for the year 17 570 102 – – – – (494) (28) 17 150

Attributable to


Ordinary equityholder 17 351 102 – – – – (494) (28) 16 931

Headline and normalised earnings adjustments – (102) – – – – 494 28 420



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IFRS INFORMATION

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R millionJune 2015Normalised

IAS 19adjustment


assetsEconomic

hedges


USDliquidityfunding

TRSadjustment


Net interest income before impairment of advances 33 913 – (807) (265) (2 816) 204 – – 30 229


Net interest income after impairment of advances 28 920 – (807) (265) (2 179) 204 – – 25 873

Non-interest revenue 25 057 – 807 265 2 179 (204) 1 106 6 29 216

Income from operations 53 977 – – – – – 1 106 6 55 089

Operating expenses (32 591) 149 – – – – (1 059) 3 (33 498)

Income before tax 21 386 149 – – – – 47 9 21 591

Indirect tax (751) – – – – – – – (751)

Profit before tax 20 635 149 – – – – 47 9 20 840

Income tax expense (5 182) (42) – – – – (13) (2) (5 239)

Profit for the year 15 453 107 – – – – 34 7 15 601

Attributable to


Ordinary equityholders 15 246 107 – – – – 34 7 15 394

Headline and normalised earnings adjustments – (107) – – – – (34) (7) (148)


RECONCILIATION OF NORMALISED TO IFRS SUMMARISED INCOME STATEMENTfor the year ended 30 June 2015

R millionJune 2015Normalised

IAS 19adjustment


assetsEconomic

hedges


USDliquidityfunding

TRSadjustment


Net interest income before impairment of advances 33 913 – (807) (265) (2 816) 204 – – 30 229


Net interest income after impairment of advances 28 920 – (807) (265) (2 179) 204 – – 25 873

Non-interest revenue 25 057 – 807 265 2 179 (204) 1 106 6 29 216

Income from operations 53 977 – – – – – 1 106 6 55 089

Operating expenses (32 591) 149 – – – – (1 059) 3 (33 498)

Income before tax 21 386 149 – – – – 47 9 21 591

Indirect tax (751) – – – – – – – (751)

Profit before tax 20 635 149 – – – – 47 9 20 840

Income tax expense (5 182) (42) – – – – (13) (2) (5 239)

Profit for the year 15 453 107 – – – – 34 7 15 601

Attributable to


Ordinary equityholders 15 246 107 – – – – 34 7 15 394

Headline and normalised earnings adjustments – (107) – – – – (34) (7) (148)



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IFRS INFORMATION

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R million Normalised

Reallocation of credit

investments IFRS

ASSETS

Cash and cash equivalents 50 997 – 50 997

Derivative financial instruments 39 923 – 39 923

Commodities 12 514 – 12 514

Investment securities 111 430 44 395 155 825

Advances 764 088 (44 395) 719 693

Accounts receivable 4 561 – 4 561

Non-current assets and disposal groups held for sale – – –

Current tax asset 166 – 166

Amounts due by holding company and fellow subsidiaries 32 793 – 32 793

Property and equipment 13 632 – 13 632

Intangible assets 106 – 106

Deferred income tax asset 1 369 – 1 369

Total assets 1 031 579 – 1 031 579


Liabilities

Short trading positions 14 221 – 14 221


Creditors, accruals and provisions* 12 644 – 12 644

Current tax liability 75 – 75

Deposits 826 473 – 826 473

Employee liabilities 8 772 – 8 772

Other liabilities 5 386 – 5 386

Amounts due to holding company and fellow subsidiaries 13 997 – 13 997

Tier 2 liabilities 17 468 – 17 468

Total liabilities 949 660 – 949 660

Equity

Ordinary shares 4 – 4

Share premium 16 804 – 16 804

Reserves 62 111 – 62 111


NCNR preference shares 3 000 – 3 000

Total equity 81 919 – 81 919

Total equity and liabilities 1 031 579 – 1 031 579

* In the prior year provisions were presented in a separate line on the statement of financial position. The prior year has been restated accordingly.

RECONCILIATION OF NORMALISED TO IFRS SUMMARISED STATEMENT OF FINANCIAL POSITIONas at 30 June 2016

R million Normalised

Reallocation of credit

investments IFRS

ASSETS

Cash and cash equivalents 53 725 – 53 725


Commodities 7 354 – 7 354

Investment securities 103 673 29 870 133 543

Advances 705 257 (29 870) 675 387

Accounts receivable 4 301 – 4 301

Non-current assets and disposal groups held for sale 125 – 125

Current tax asset – – –

Amounts due by holding company and fellow subsidiaries 27 318 – 27 318

Property and equipment 12 821 – 12 821

Intangible assets 71 – 71

Deferred income tax asset 1 202 – 1 202

Total assets 949 959 – 949 959


Liabilities

Short trading positions 5 270 – 5 270


Creditors, accruals and provisions* 12 465 – 12 465

Current tax liability 69 – 69

Deposits 779 703 – 779 703

Employee liabilities 8 848 – 8 848

Other liabilities 3 977 – 3 977

Amounts due to holding company and fellow subsidiaries 11 836 – 11 836

Tier 2 liabilities 11 983 – 11 983

Total liabilities 874 962 – 874 962

Equity

Ordinary shares 4 – 4

Share premium 16 804 – 16 804

Reserves 55 189 – 55 189


NCNR preference shares 3 000 – 3 000

Total equity 74 997 – 74 997

Total equity and liabilities 949 959 – 949 959

* In the prior year provisions were presented in a separate line on the statement of financial position. This amount has been restated.

RECONCILIATION OF NORMALISED TO IFRS SUMMARISED STATEMENT OF FINANCIAL POSITIONas at 30 June 2015


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IFRS INFORMATION

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FAIR VALUE MEASUREMENTS (AUDITED)

VALUATION METHODOLOGY

In terms of IFRS, the bank is required to or elects to measure certain assets and liabilities at fair value. The bank has established control frameworks and processes at a franchise level to independently validate its valuation techniques and inputs used to determine its fair value measurements. At a franchise level, technical teams are responsible for the selection, implementation and any changes to the valuation techniques used to determine fair value measurements. Valuation committees comprising representatives from key management have been established within each franchise and at an overall bank level and are responsible for overseeing the valuation control process and considering the appropriateness of the valuation techniques applied in fair value measurement. The valuation models and methodologies are subject to independent review and approval at a franchise level by the required technical teams, valuation committees and relevant risk committees annually or more frequently if considered appropriate.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date i.e. an exit price. Fair value is therefore a market-based measurement and when measuring fair value, the bank uses the assumptions that market participants would use when pricing an asset or liability under current market conditions, including assumptions about risk. When determining fair value it is presumed that the entity is a going concern and the fair value is therefore not an amount that represents a forced transaction, involuntary liquidation or a distressed sale.

Fair value measurements are determined by the bank on both a recurring and non-recurring basis.

Recurring fair value measurementsRecurring fair value measurements includes financial assets, financial liabilities and non-financial assets, including commodities, that the bank measures at fair value at the end of each reporting period.

Financial instrumentsWhen determining the fair value of a financial instrument, where the financial instruments has a bid or ask price (e.g. in a dealer market), the bank uses the price within the bid-ask spread that is most representative of fair value in the circumstances. Although not a requirement, the bank uses the bid price for financial assets or the ask/offer price for financial liabilities where this best represents fair value.

When determining the fair value of a financial liability, the quoted price for the transfer of an identical or similar liability is used. Where this is not available and an identical item is held by another party as an asset, the fair value of the liability is measured using the quoted price in an active market of the identical item, if that price is available, or using observable inputs (such as the quoted price in an inactive market for the identical item) or using another valuation technique.

Where the bank has any financial liability with a demand feature, such as demand deposits, the fair value is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid where the time value of money is significant.

Non-financial assetsWhen determining the fair value of a non-financial asset, a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use, is taken into account. This includes the use of the asset that is physically possible, legally permissible and financially feasible. In determining the fair value of the bank’s commodities, the highest and best use of the assets was their current use.

Non-recurring fair value measurementsNon-recurring fair value measurements are those triggered by particular circumstances and include:

the classification of assets and liabilities as non-current assets or disposal groups held for sale under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations where the recoverable amount is based on the fair value less costs to sell;

IFRS 3 Business Combinations where assets and liabilities are measured at fair value at acquisition date; and

IAS 36 Impairment of Assets where the recoverable amount is based on the fair value less costs to sell.

These fair value measurements are determined on a case by case basis as they occur within each reporting period.

Financial instruments not measured at fair valueThis category includes assets and liabilities not measured at fair value but for which fair value disclosures are required under another IFRS, e.g. financial instruments at amortised cost. The fair value for these items is determined by using observable quoted market prices where these are available, such as market prices quoted on BESA, or in accordance with generally acceptable pricing models such as a discounted cash flow analysis. Except for the amounts included on page 97, for all other financial instruments at amortised cost the carrying value is equal to or a reasonable approximation of the fair value.

FAIR VALUE HIERARCHY AND MEASUREMENTS

The bank classifies assets and liabilities measured at fair value using a fair value hierarchy that reflects whether observable or unobservable inputs are used in determining the fair value of the item. If this information is not available, fair value is measured using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. The valuation techniques employed by the bank include, inter alia, quoted prices for similar assets or liabilities in an active market, quoted prices for the same asset or liability in an inactive market, adjusted prices from recent arm’s length transactions, option-pricing models, and

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discounted cash flow techniques.

Where a valuation model is applied and the bank cannot mark-to-market, it applies a mark-to-model approach, subject to valuation adjustments. Mark-to-model is defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input. The bank will consider the following in assessing whether a mark-to-model valuation is appropriate:

as far as possible, market inputs are sourced in line with market prices;

generally accepted valuation methodologies are consistently used for particular products unless deemed inappropriate by the relevant governance forums;

where a model has been developed in-house, it is based on appropriate assumptions, which have been assessed and

Measurement of assets and liabilities at level 2The table below sets out the valuation techniques applied by the bank for recurring fair value measurements of assets and liabilities categorised as level 2.

InstrumentValuation technique Description of valuation technique and main assumptions Observable inputs

Derivative financial instruments

Forward rate agreements

Discounted cash flows

Future cash flows are projected using a forward curve and then discounted using a market-related discount curve over the contractual period. The reset date is determined in terms of legal documents.

Market interest rates and curves and credit spreads

Swaps Discounted cash flows

Future cash flows are projected using a forward curve and then discounted using a market-related discount curve over the contractual period. The reset date of each swaplet is determined in terms of legal documents.

Market interest rates and curves

Option Option pricing model

The Black Scholes model is used. Strike price of the option; market-related discount rate; forward rate and cap and floor volatility

Forwards Discounted cash flows

Future cash flows are projected using a forward curve and then discounted using a market-related discount curve over the contractual period. Projected cash flows are obtained by subtracting the strike price of the forward contract from the market projected forward value.


Equity derivatives

Industry standard models

The models calculate fair value based on input parameters such as share prices, dividends, volatilities, interest rates, equity repo curves and, for multi-asset products, correlations. Unobservable model inputs are determined by reference to liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.

Market interest rates, curves, volatilities, dividends and share prices

Loans and advances to customers

Other loans and advances


Future cash flows are discounted using market-related interest rates adjusted for credit inputs, over the contractual period. Although the fair value of credit is not significant year-on-year it may become significant in future. In the event that credit spreads are observable for a counterparty, loans and advances to customers are classified as level 2 of the fair value hierarchy.

Market interest rates, curves and credit spreads

challenged by suitably qualified parties independent of the development process;

formal change control procedures are in place;

awareness of the weaknesses of the models used and appropriate reflection in the valuation output;

the model is subject to periodic review to determine the accuracy of its performance; and

valuation adjustments are only made when appropriate, for example, to cover the uncertainty of the model valuation. The bank considers factors such as counterparty and own credit when making appropriate valuation adjustments.


IFRS INFORMATION

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Fair value measurements continued


Investment securities

Equities listed in an inactive market


For listed equities, the listed price is used where the market is active (i.e. level 1). However, if the market is not active and the listed price is not representative of fair value, a valuation technique is used to determine the fair value. The valuation technique will be based on risk parameters of comparable securities and the potential pricing difference in spread and/or price terms with the traded comparable is considered. The future cash flows are discounted using market-related interest rates. Where the valuation technique incorporates observable inputs, level 2 of the fair value hierarchy is deemed appropriate.


Unlisted bonds or bonds listed in an inactive market


Unlisted bonds or bonds listed in an inactive market are valued similarly to advances measured at fair value. The future cash flows are discounted using market-related interest rates adjusted for credit inputs, over the contractual period. Where the valuation technique incorporates observable inputs for credit risk, level 2 of the fair value hierarchy is deemed appropriate.


Unlisted equities

Price earnings (P/E) model

For unlisted equities, the earnings included in the model are derived from a combination of historical and budgeted earnings depending on the specific circumstances of the entity whose equity is being valued. The P/E multiple is derived from current market observations taking into account an appropriate discount for unlisted companies. The valuation of these instruments may be corroborated by a discounted cash flow valuation or by the observation of other market transactions that have taken place in which case level 2 classifications are used.

Market transactions

Negotiable certificates of deposit


Future cash flows are discounted using market-related interest rates. Inputs to these models include information that is consistent with similar market-quoted instruments, where available.


Treasury bills BESA bond pricing model

The BESA bond pricing model uses the BESA mark-to-market bond yield. Market interest rates and curves

Investments in funds and unit trusts

Third party valuations

For certain investments in funds (such as hedge funds) or unit trusts, where an internal valuation technique is not applied, the bank places reliance on valuations from third parties such as broker quotes or valuations from asset managers. Where considered necessary, the bank applies minority and marketability or liquidity discount adjustments to these third party valuations. Third party valuations are reviewed by the relevant franchise’s investment committee on a regular basis.

Where these investments are listed, these third party valuations can be corroborated with reference to listed share prices and other market data and are thus classified in level 2 of the fair value hierarchy.

Market transactions (listed)

Deposits

Call and non-term deposits

None – the undiscounted amount is used

The undiscounted amount of the deposit is the fair value due to the short term nature of the instruments. These deposits are financial liabilities with a demand feature and the fair value is not less than the amount payable on demand, i.e. the undiscounted amount of the deposit.

None – the undiscounted amount approximates fair value and no valuation is performed

Other deposits Discounted cash flows

The forward curve adjusted for liquidity premiums and business unit margins. The valuation methodology does not take early withdrawals and other behavioural aspects into account.


Other liabilities


Future cash flows are discounted using market-related interest rates. Where the value of a liability is linked to the performance of an underlying and the underlying is observable, these liabilities are classified at level 2.

Market interest rates and performance of underlying

Tier 2 liabilities


Future cash flows are discounted using market-related interest rates. Market interest rates and curves

FAIR VALUE HIERARCHY AND MEASUREMENTS continued

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Financial assets and liabilities not measured at fair value but for which fair value is disclosed


Future cash flows are discounted using market-related interest rates and curves adjusted for credit inputs.


Measurement of assets and liabilities at level 3The table below sets out the valuation techniques applied by the bank for recurring fair value measurements of assets and liabilities categorised as level 3.

InstrumentValuation technique Description of valuation technique and main assumptions

Significant unobservable inputs of level 3 items


Option Option pricing model

The Black Scholes model is used. Volatilities

Equity derivatives

Industry standard models

The models calculate fair value based on input parameters such as share prices, dividends, volatilities, interest rates, equity repo curves and, for multi-asset products, correlations. Unobservable model inputs are determined by reference to liquid market instruments and applying extrapolation techniques to match the appropriate risk profile.

Volatilities and share prices

Loans and advances to customers

Investment banking book


The bank has elected to designate the investment banking book advances at fair value through profit or loss. Credit risk is not observable and could have a significant impact on the fair value measurement of these advances and as such, these advances are classified as level 3 on the fair value hierarchy. The future cash flows are discounted using market-related interest rates. To calculate the fair value of credit the bank uses a valuation methodology based on the credit spread matrix, which considers loss given default, tenor and the internal credit committee rating criteria. The fair value measurement includes the original credit spread and is repriced when there is a change in rating of the counterparty. A decline in credit rating would result in an increase in the spread above the base rate for discounting purposes and consequently a reduction of the fair value of the advance. Similarly an increase in credit rating would result in a decrease in the spread below the base rate and an increase of the fair value of the advance.

Credit inputs

Other loans and advances


Future cash flows are discounted using market-related interest rates adjusted for credit inputs, over the contractual period. Although the fair value of credit is not significant year-on-year it may become significant in future. For this reason, together with the fact that the majority of South African counterparties do not have actively traded or observable credit spreads, the bank has classified other loans and advances to customers at level 3 of the fair value hierarchy.

Credit inputs


Equities listed in an inactive market


For listed equities, the listed price is used where the market is active (i.e. level 1). However, if the market is not active and the listed price is not representative of fair value, a valuation technique is used to determine the fair value. The valuation technique will be based on risk parameters of comparable securities and the potential pricing difference in spread and/or price terms with the traded comparable is considered. The future cash flows are discounted using market-related interest rates. Where the valuation technique incorporates unobservable inputs for equities e.g. P/E ratios, level 3 of the fair value hierarchy is deemed appropriate.

Unobservable P/E ratios



IFRS INFORMATION

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InstrumentValuation technique Description of valuation technique and main assumptions

Significant unobservable inputs of level 3 items

Investment securities continued

Unlisted bonds or bonds listed in an inactive market


Unlisted bonds or bonds in an inactive market are valued similarly to advances measured at fair value. The future cash flows are discounted using market-related interest rates adjusted for credit inputs, over the contractual period. Where the valuation technique incorporates unobservable inputs for credit risk, level 3 of the fair value hierarchy is deemed appropriate.

Credit inputs

Unlisted equities

P/E model For unlisted equities, the earnings included in the model are derived from a combination of historical and budgeted earnings depending on the specific circumstances of the entity whose equity is being valued. The P/E multiple is derived from current market observations taking into account an appropriate discount rate for unlisted companies. The valuation of these instruments may be corroborated by a discounted cash flow valuation or by the observation of other market transactions that have taken place.

Growth rates and P/E ratios

Investments in funds and unit trusts

Third party valuations

For certain investments in funds (such as hedge funds) or unit trusts, where an internal valuation technique is not applied, the bank places reliance on valuations from third parties such as broker quotes or valuations from asset managers. Where considered necessary, the bank applies minority and marketability or liquidity discount adjustments to these third party valuations. Third party valuations are reviewed by the relevant franchise’s investment committee on a regular basis.

Where these investments are unlisted, the bank has classified these in level 3 of the fair value hierarchy, as there is no observable market data to which to compare the third party valuations.

None (unlisted) – third party valuations used, minority and marketability adjustments

Deposits

Deposits that represent collateral on credit-linked notes


These deposits represent the collateral leg of credit-linked notes. The forward curve adjusted for liquidity premiums and business unit margins are used. The valuation methodology does not take early withdrawals and other behavioural aspects into account.

Credit inputs on related advances

Other deposits Discounted cash flows

The forward curve adjusted for liquidity premiums and business unit margins. The valuation methodology does not take early withdrawals and other behavioural aspects into account.

Credit inputs

Other liabilities


For preference shares which require the bank to share a portion of profits of underlying contracts with a third party, the value of the liability is linked to the performance of the underlying. Where the underlying is not observable, these liabilities are classified as level 3. Future cash flows are discounted using market-related interest rates, adjusted for the performance of the underlying contracts.

Performance of underlying contracts

Financial assets and liabilities not measured at fair value but for which fair value is disclosed


Future cash flows are discounted using market-related interest rates and curves adjusted for credit inputs.

Credit inputs

Non-recurring fair value measurementsFor non-recurring fair value measurements the fair value hierarchy classification and valuation technique applied in determining fair value will depend on the underlying asset or liability being measured. Where the underlying assets or liabilities are those for which recurring fair value measurements are required as listed in the table above, the technique applied and the inputs into the models would be in line with those as set out in the table. Where the underlying assets or liabilities are not items for which recurring fair value measurements are required, for example property and equipment or intangible assets, the carrying value is considered to be equal to a reasonable approximation of the fair value. This will be assessed per transaction and details will be provided in the relevant notes of the annual financial statements, when applicable. There were no assets or liabilities measured at fair value on a non-recurring basis in the current and prior years.


p93


The following table presents the fair value measurements and fair value hierarchy of assets and liabilities of the bank which are recognised at fair value.

2016

R million Level 1 Level 2 Level 3Total

fair value

Assets

Recurring fair value measurements

Derivative financial instruments 241 39 682 – 39 923

Investment securities 75 709 21 629 46 390 143 728

Advances – 43 831 154 731 198 562

Commodities 12 514 – – 12 514

Amounts due by holding company and fellow subsidiaries – 383 – 383

Total assets measured at fair value 88 464 105 525 201 121 395 110

Liabilities


Short trading positions 14 221 – – 14 221

Derivative financial instruments 121 50 375 128 50 624

Deposits 2 482 98 310 528 101 320

Other liabilities – 3 370 1 457 4 827

Amounts due to holding company and fellow subsidiaries – 319 – 319

Total liabilities measured at fair value 16 824 152 374 2 113 171 311

2015

R million Level 1 Level 2 Level 3Total

fair value

Assets



Investment securities 65 313 39 361 28 677 133 351

Advances – 40 679 153 777 194 456

Commodities 7 354 – – 7 354

Amounts due by holding company and fellow subsidiaries – 295 – 295

Total assets measured at fair value 72 763 114 346 182 459 369 568

Liabilities


Short trading positions 5 270 – – 5 270


Deposits 2 207 93 591 1 182 96 980

Other liabilities – 3 348 – 3 348

Amounts due to holding company and fellow subsidiaries – 135 – 135

Total liabilities measured at fair value 7 528 137 829 1 187 146 544


IFRS INFORMATION

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Transfers between fair value hierarchy levelsThe following represents the significant transfers into levels 1, 2 and 3 and the reasons for these transfers. Transfers between levels of the fair value hierarchy are deemed to occur at the beginning of the reporting period.

2016

R million Transfers in Transfers out Reasons for transfers in

Level 1 – (2 821) There were no transfers into level 1.

Level 2 – (107) There were no transfers into level 2.

Level 3 2 928 – The market for certain bonds listed in South Africa has become inactive in the current period because of stresses in the macro environment. The market price is therefore not representative of fair value and a valuation technique is applied. Because of credit valuation being unobservable the bonds have been classified into level 3 of the hierarchy.An evaluation of the observability of volatilities used in determining the fair value of certain over-the-counter options has resulted in a transfer out of level 2 of the fair value hierarchy and into level 3.

Total transfers 2 928 (2 928)

2015

R million Transfers in Transfers out Reasons for transfers in

Level 1 – – There were no transfers in or out of level 1.

Level 2 6 (4 709) The transfers into level 2 relates to advances for which the significant inputs into the fair value calculation became observable in the current year.

Level 3 4 709 (6) Corporate bonds to the value of R4 709 million were transferred into level 3. The market for these bonds is not active and the fair value is determined using a valuation technique that makes use of unobservable inputs for credit. Level 3 of the fair value hierarchy is therefore deemed more appropriate.

Total transfers 4 715 (4 715)

ADDITIONAL DISCLOSURES FOR LEVEL 3 FINANCIAL INSTRUMENTS

Changes in level 3 instruments with recurring fair value measurementsThe following table show a reconciliation of the opening and closing balances for assets and liabilities measured at fair value on a recurring basis classified as level 3 in terms of the fair value hierarchy.

R million

Derivativefinancial

assets AdvancesInvestment

securities

Derivativefinancialliabilities Deposits

Other liabilities

Balance as at 30 June 2014 1 146 064 5 518 5 952 –

Gains/losses recognised in profit or loss 4 6 801 1 083 4 14 –

Gains/losses recognised in other comprehensive income – – 97 – – –

Purchases, sales, issues and settlements – (367) 17 248 (4) 216 –

Transfers into/(out) of level 3 – (6) 4 709 – – –

Exchange rate differences – 1 285 22 – – –

Balance as at 30 June 2015 5 153 777 28 677 5 1 182 –

Gains/losses recognised in profit or loss (6) 8 008 5 764 13 15 35

Gains/losses recognised in other comprehensive income – – 29 – – –

Purchases, sales, issues and settlements – (8 953) 9 025 3 (669) 1 422

Transfers into/(out) of level 3 – – 2 821 107 – –

Exchange rate differences 1 1 899 74 – – –

Balance as at 30 June 2016 – 154 731 46 390 128 528 1 457

Decreases in level 3 assets and liabilities are included in brackets. Decreases in the value of assets may be a result of losses, sales and settlements or the disposal of subsidiaries. Decreases in the value of liabilities may be a result of gains, settlements or the disposal of subsidiaries.

p95

ADDITIONAL DISCLOSURES FOR LEVEL 3 FINANCIAL INSTRUMENTS continued

Unrealised gains or losses on level 3 instruments with recurring fair value measurementsThe valuation model for level 3 assets or liabilities typically relies on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

The table below presents the total gains/losses relating to remeasurement of assets and liabilities carried at fair value on a recurring basis classified in level 3 that are still held at reporting date. With the exception of interest on funding instruments and available-for-sale financial assets, all gains or losses are recognised in non-interest revenue.

2016 2015

R million

Gains/losses recognised in

the income statement

Gains/losses recognised

in other comprehensive

income

Gains/losses recognised in

the income statement

Gains/losses recognised

in other comprehensive

income

Assets

Derivative financial instruments – – 4 –

Advances* 7 415 – 5 132 –

Investment securities 5 476 29 937 97

Total 12 891 29 6 073 97

Liabilities

Derivative financial instruments 19 – 4 –

Deposits (14) – (14) –

Other liabilities – – – –

Total 5 – (10) –

* Amount is mainly accrued interest on the fair value loans and advances and movements in interest rates that have been hedged.

Decreases in level 3 assets and liabilities are included in brackets. Decreases in the value of assets may be a result of losses, sales and settlements or the disposal of subsidiaries. Decreases in the value of liabilities may be a result of gains, settlements or the disposal of subsidiaries.


IFRS INFORMATION

p96


ADDITIONAL DISCLOSURES FOR LEVEL 3 FINANCIAL INSTRUMENTS continued

Effect of changes in significant unobservable assumptions of level 3 financial instruments to reasonably possible alternativesThe table below illustrates the sensitivity of the significant inputs when changed to reasonable possible alternative inputs:

Asset/liability

Significantunobservable inputs

Unobservable input to which reasonably possible changes are applied Reasonably possible changes applied


Volatilities Volatilities Increased and decreased by 10%.

Advances Credit Credit migration matrix The credit migration matrix is used as part of the bank's credit risk management process for the advances measured at fair value through profit or loss. The matrix is a simulation model that contains a matrix of probabilities for downgrading or upgrading to another rating bucket. The migration matrix is based on actual observed rating migrations from S&P over the long term and is based on the fair value in the 75th percentile.


Credit, growth rates and P/E ratios of unlisted investments

Unobservable inputs Increased and decreased by 10%.

Deposits Credit risk of the cash collateral leg of credit-linked notes

Credit migration matrix The deposits included in level 3 of the hierarchy represent the collateral leg of credit-linked notes. The most significant unobservable input in determining the fair value of the credit-linked notes is the credit risk component. The sensitivity to credit risk has been assessed in the same way as for advances using the credit migration matrix with the deposit representing the cash collateral component thereof.

Other liabilities Performance of underlying contracts

Profits on the underlying contracts

Increased by 10% and decreased by 1%.

2016 2015

R million

Reasonably possible alternative fair value

Reasonably possible alternative fair value

Fair value

Using more

positive assumptions

Using more

negative assumptions Fair value

Using more

positive assumptions

Using more

negative assumptions

Assets

Derivative financial instruments – – – 5 6 5

Advances 154 731 155 346 153 870 153 777 154 411 151 871

Investment securities 46 390 46 912 45 884 28 677 29 004 28 360

Total financial assets measured at fair value in level 3 201 121 202 258 199 754 182 459 183 421 180 236

Liabilities


Deposits 528 478 618 1 182 1 064 1 301

Other liabilities 1 457 1 443 1 602 – – –

Total financial liabilities measured at fair value in level 3 2 113 2 045 2 349 1 187 1 068 1 306

p97

FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE

The following represents the fair values of financial instruments not carried at fair value on the statement of financial position but for which fair value is required to be disclosed. For all other financial instruments the carrying value is equal to or a reasonable approximation of the fair value.

2016

R millionCarrying

valueTotal

fair value Level 1 Level 2 Level 3

Assets

Advances 521 131 525 651 – 86 363 439 288

Investment securities 12 097 12 083 – 12 083 –

Total assets at amortised cost 533 228 537 734 – 98 446 439 288

Liabilities

Deposits 725 153 724 819 7 897 716 692 230

Other liabilities 532 531 – 531 –

Tier 2 liabilities 17 468 17 682 – 17 682 –

Total liabilities at amortised cost 743 153 743 032 7 897 734 905 230

2015

R millionCarrying

valueTotal

fair value Level 1 Level 2 Level 3

Assets

Advances 480 931 483 816 – 86 999 396 817

Investment securities 192 192 – 192 –

Total assets at amortised cost 481 123 484 008 – 87 191 396 817

Liabilities

Deposits 682 723 682 482 5 159 674 881 2 442

Other liabilities 629 625 – 625 –

Tier 2 liabilities 11 983 12 188 – 12 188 –

Total liabilities at amortised cost 695 335 695 295 5 159 687 694 2 442

DAY 1 PROFIT OR LOSS

The following table represents the aggregate difference between transaction price and fair value based on a valuation technique yet to be recognised in profit or loss.

R million 2016 2015

Opening balance 6 11

Day 1 profits or losses not recognised on financial instruments initially recognised in the current year 37 –

Amount recognised in profit or loss as a result of changes which would be observable by market participants (5) (5)

Closing balance 38 6


IFRS INFORMATION

p98

2016

R million FNB FNB

Africa*

RMB

WesBank FCC

Elimi-nations

and IFRSadjust-ments Total

Investmentbanking

Corporatebanking

Profit for the year before tax 15 145 (357) 4 029 1 100 3 539 (39) (807) 22 610

Total assets 332 172 1 148 339 258 36 269 169 050 173 972 (20 290) 1 031 579

Total liabilities 317 128 1 507 336 224 34 919 165 582 115 023 (20 723) 949 660

2015

R million FNB FNB

Africa*

RMB

WesBank FCC

Elimi-nations

and IFRSadjust-ments Total

Investmentbanking

Corporatebanking

Profit for the year before tax 13 422 (323) 4 194 1 024 2 602 665 (744) 20 840

Total assets 307 666 579 316 633 36 081 157 554 133 323 (1 877) 949 959

Total liabilities 294 237 903 313 381 34 764 154 915 78 774 (2 012) 874 962

* FNB Africa results reported above relate to head office costs and FNB’s activities in India.

SUMMARISED SEGMENT INFORMATION – IFRS (AUDITED)

p99

supplementaryinformationpg 100 – 105


p100


Contingencies

Guarantees 32 659 33 319 (2)

Letters of credit 6 485 5 494 18

Total contingencies 39 144 38 813 1

Capital commitments

Contracted capital commitments 1 693 731 >100

Capital expenditure authorised not yet contracted 2 009 4 047 (50)

Total capital commitments 3 702 4 778 (23)

Other commitments

Irrevocable commitments 95 630 80 044 19

Operating lease and other commitments 2 698 2 131 27

Total other commitments 98 328 82 175 20

Total contingencies and commitments 141 174 125 766 12

CONTINGENCIES AND COMMITMENTS (AUDITED)as at 30 June

p101

DIRECTORS

LL Dippenaar (chairman), JP Burger (chief executive officer), AP Pullinger (deputy chief executive officer), HS Kellan (financial director), VW Bartlett, MS Bomela, P Cooper (alternate), JJ Durand, GG Gelink, PM Goss, NN Gwagwa, PK Harris, WR Jardine, F Knoetze, RM Loubser, PJ Makosholo, EG Matenge-Sebesho, AT Nzimande, D Premnarayen (India), BJ van der Ross, JH van Greuning

COMPANY SECRETARY AND REGISTERED OFFICE

C Low4 Merchant Place, Corner Fredman Drive and Rivonia RoadSandton 2196PO Box 650149, Benmore 2010Tel: +27 11 282 1808Fax: +27 11 282 8088www.firstrand.co.za

SPONSOR

(In terms of JSE debt listing requirements)Rand Merchant Bank (a division of FirstRand Bank Limited)Debt Capital Markets1 Merchant Place, Corner Fredman Drive and Rivonia RoadSandton 2196Tel: +27 11 282 8118Fax: +27 11 282 4184

AUDITORS

PricewaterhouseCoopers Incorporated2 Eglin RoadSunninghillSandton 2196

Deloitte & ToucheBuilding 8Deloitte PlaceThe WoodlandsWoodlands DriveWoodmead, SandtonDocex 10 Johannesburg

COMPANY INFORMATION



p102

LISTED DEBT INSTRUMENTS

Johannesburg Stock Exchange (JSE)

Issuer Bond code ISIN code

Sub

ordi

nate

d de

bt

FirstRand Bank Limited FRB05 ZAG000031337













FirstRand Bank Limited FRBC21 ZAG000052283

FirstRand Bank Limited FRBC22 ZAG000052390

Sen

ior

unse

cure

d

FirstRand Bank Limited FRBZ01 ZAG000049255



FirstRand Bank Limited FRJ16 ZAG000073826







FirstRand Bank Limited FRS36 ZAG000077397




























LISTED FINANCIAL INSTRUMENTS OF THE BANK


Sen

ior

unse

cure

d





























FirstRand Bank Limited FRX16 ZAG000084203











Infla

tion-

linke

d bo

nds

FirstRand Bank Limited FRBI22 ZAG000079666





Cre

dit-

linke

d no

tes

FirstRand Bank Limited FRC46 ZAG000082959









p103


Cre

dit-

linke

d no

tes







FirstRand Bank Limited FRC94A ZAG000106725


FirstRand Bank Limited FRC96A ZAG000106733














































Cre

dit-

linke

d no

tes
























































p104

Listed financial instruments of the bank continued


Cre

dit-

linke

d no

tes



FirstRand Bank Limited FRD003 ZAG000114067

FirstRand Bank Limited FRD013 ZAG000128695

Str

uctu

red

no

tes

FirstRand Bank Limited COLRMB ZAE000155222

London Stock Exchange (LSE)European medium term note (EMTN) programme

Issuer ISIN code

Sen

ior

unse

cure

d

FirstRand Bank Limited XS0610341967





SIX Swiss Exchange

Issuer ISIN code

Sen

ior

unse

cure

d FirstRand Bank Limited CH0238315680

LISTED DEBT INSTRUMENTS continued

JSE continued

p105

Additional Tier 1 capital (AT1) NCNR preference share capital plus qualifying capital instruments issued out of fully consolidated subsidiaries to third parties less specified regulatory deductions.

CAGR Compound annual growth rate.

Capital adequacy ratio (CAR) Total qualifying capital and reserves divided by RWA.

Common Equity Tier 1 (CET1) capital Share capital and premium plus accumulated comprehensive income and reserves plus qualifying capital instruments issued out of fully consolidated subsidiaries to third parties less specified regulatory deductions.

Cost-to-income ratio Operating expenses excluding indirect taxes expressed as a percentage of total income.

Credit loss ratio Total impairment charge per the income statement expressed as a percentage of average advances (average between the opening and closing balance for the year).

Diversity ratio Non-interest revenue expressed as a percentage of total income.

Effective tax rate Tax per the income statement divided by the profit before tax per the income statement.

EMTN European medium term note programme

Loan-to-deposit ratio Average advances expressed as a percentage of average deposits.

Loss given default (LGD) Economic loss that will be suffered on an exposure following default of the counterparty, expressed as a percentage of the amount outstanding at the time of default.

Net income after capital charge (NIACC) Normalised earnings less the cost of equity multiplied by the average ordinary shareholders’ equity and reserves.

Normalised earnings The bank believes normalised earnings more accurately reflect its economic performance. Headline earnings are adjusted to take into account non-operational and accounting anomalies.

Normalised net asset value Normalised equity attributable to ordinary equityholders.

Return on assets (ROA) Normalised earnings divided by average assets.

Return on equity (ROE) Normalised earnings divided by average normalised ordinary shareholders equity.

Risk weighted assets (RWA) Prescribed risk weightings relative to the credit risk of counterparties, operational risk, market risk, equity investment risk and other risk multiplied by on- and off-balance sheet assets.

Tier 1 ratio Tier 1 capital divided by RWA.

Tier 1 capital Common Equity Tier 1 capital plus AT 1 capital.

Tier 2 capital Qualifying subordinated debt instruments plus qualifying capital instruments issued out of fully consolidated subsidiaries to third parties plus general provisions for entities on the standardised approach less specified regulatory deductions.

TLAC Total loss absorbing capacity.

TRS Total return swap.

Total qualifying capital and reserves Tier 1 capital plus Tier 2 capital.

DEFINITIONS



p106

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analysis of financial results · 2019-09-04 · this report covers the audited summarised financial...

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